SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A

(Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended December 31, 2000

                                                        OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         For the transition period from           to

         Commission File  Number 0-7288

                        INTERCONTINENTAL LIFE CORPORATION
             (Exact name of registrant as specified in its charter)

     Texas                                  22-1890938
(State of Incorporation)            (I.R.S. Employer identification number)

6500 River Place Blvd., Building One, Austin, Texas      78730
(Address of Principal Executive Offices)               (Zip Code)

           (512)  404-5000
(Registrant's Telephone Number, including area code)

Securities Registered pursuant to Section 12(b) of the Act: None

Securities Registered pursuant to Section 12(g) of the Act:

                  Common Stock, $.22 par value
                         (Title of Class)


                                       -1-


<PAGE>


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during  the  preceding  12  months  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

YES   X    NO

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  aggregate  market value of the voting and  non-voting  common stock held by
non-affiliates  of the  Registrant on March 6, 2001,  based on the closing sales
price in the Nasdaq Small-Cap Market ($10.44 per share), was $41,514,023.

As of March 6,  2001,  Registrant  had  8,141,385  shares  of its  common  stock
outstanding (excluding shares held in Treasury and not entitled to vote).

                                       -2-


<PAGE>




Note:  This  Form  10-K/A  is  being  filed  in  order  (i) to  correct  certain
typographical  errors  which appear in the  electronic  version of the Form 10-K
which  was  filed by the  Registrant  on April 2,  2001 and (ii) to  include  an
exhibit - Ex-10(aw) of an agreement  which was  discussed in the Form 10-K.  The
non-material  corrections do not pertain to entries in the income  statements or
balance sheets of the Registrant. The following material represents the complete
Annual  Report of the  Registrant  on Form 10-K for the year ended  December 31,
2000, as so corrected.  Other than the exhibit being filed  herewith,  this Form
10-K/A does not include any  discussions or disclosures  which were not included
in the Form 10-K filed on April 2, 2001.

                           Forward-Looking Statements

Except for  historical  factual  information  set forth in this Form  10-K,  the
statements, analyses, and other information contained in this report relating to
trends in the Company's  operations and financial  results,  the markets for the
Company's products,  the future development of the Company's  business,  and the
contingencies and uncertainties to which the Company may be subject,  as well as
other  statements  including  words  such as  "anticipate,"  "believe,"  "path,"
"estimate,"   "expect,"  "intend"  and  other  similar  expressions   constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. Such statements are made based upon management's  current expectations and
beliefs concerning the financial results, economic conditions and are subject to
known and unknown risks,  uncertainties  and other factors  contemplated  by the
forward-looking  statements.  Such  factors  include,  among other  things:  (1)
general economic  conditions and other factors,  including  prevailing  interest
rate levels and stock market  performance,  which may effect the ability of ILCO
to sell its products,  the market value of ILCO's investments and the lapse rate
and profitability of policies;  (2) ILCO's ability to achieve anticipated levels
of operational efficiencies and cost-saving  initiatives;  (3) customer response
to new products, distribution channels and marketing initiatives; (4) mortality,
morbidity  and  other  factors  which may  affect  the  profitability  of ILCO's
insurance  products;  (5) changes in the Federal income tax laws and regulations
which may affect the relative tax  advantages  of some of ILCO's  products;  (6)
increasing  competition in the sale of insurance and  annuities;  (7) regulatory
changes or actions, including those relating to regulation of insurance products
and insurance companies;  (8) ratings assigned to ILCO's insurance  subsidiaries
by  independent  rating  organizations  such as A.M.  Best  Company,  which ILCO
believes  are   particularly   important  to  the  sale  of  annuity  and  other
accumulation  products;  and  (9)  unanticipated  litigation.  There  can  be no
assurance that other factors not currently  anticipated  by management  will not
also materially and adversely affect ILCO.


                                     PART I

Item 1. Business

General

InterContinental  Life Corporation  ("ILCO",  the "Company" or the "Registrant")
was originally  incorporated  in 1969 under the laws of the State of New Jersey.
During  1997,  ILCO  transferred  its  domicile  from New Jersey to the State of
Texas.  This  change  was  approved  by vote of the  shareholders  at the annual
meeting of shareholders held on June 19, 1997. Its executive offices are located
at 6500 River Place Blvd., Building One, Austin, Texas 78730.

The Company is principally engaged,  through its subsidiaries,  in administering
existing  portfolios of life insurance  policies and annuity products.  Prior to
the end of 1997, the life insurance  subsidiaries  also administered an in-force
book of accident and health  insurance  business.  In December,  1997,  the life
insurance subsidiaries entered into an agreement, effective as of June 30, 1997,
with a third party insurer whereby the obligations under the accident and health
insurance and the  disability  income  business of the companies were assumed by
the reinsurer.  The arrangement provides for an initial period of reinsurance on
a coinsurance basis, pending applicable approvals of the assumption arrangement.

                                       -3-

<PAGE>




The  Company's  insurance  subsidiaries  are also  engaged  in the  business  of
marketing and underwriting  individual life insurance and annuity products in 49
states  and the  District  of  Columbia.  Such  products  are  marketed  through
independent, non-exclusive general agents.

The Company is controlled by Financial  Industries  Corporation  ("FIC"), a life
insurance holding company, through FIC's ownership of approximately 48.3% of the
Company's  outstanding common stock. FIC, ILCO and their insurance  subsidiaries
have substantially identical management, and a majority of the directors of ILCO
are also directors of FIC and ILCO's and FIC's insurance subsidiaries.  Officers
allocate  their time between  ILCO and FIC in  accordance  with the  comparative
requirements of both companies and their subsidiaries. The Roy F. and Joann Cole
Mitte  Foundation (the "Foundation"),  a charitable  entity exempt from federal
income tax under section 501(a) of the Internal  Revenue Code (the "Code") as an
organization  described  in section  501(c)(3)  of the Code,  owns 30.71% of the
outstanding shares of FIC's common stock. The sole members of the Foundation are
Roy F.  Mitte,  Chairman,  President  and Chief  Executive  Officer of FIC,  the
Company and their insurance  subsidiaries,  and his wife,  Joann Cole Mitte. FIC
owns Family Life  Insurance  Company,  a  Washington  domiciled  underwriter  of
mortgage protection life insurance.

The Company was organized in 1969 to be the publicly  owned holding  company for
InterContinental Life Insurance Company ("ILIC").  The Company acquired Standard
Life  Insurance  Company  ("Standard  Life") in 1986,  Investors  Life Insurance
Company of California  ("Investors-CA")  and Investors Life Insurance Company of
North America ("Investors-NA") in 1988, Meridian Life Insurance Company, renamed
Investors Life Insurance Company of Indiana ("Investors-Indiana"),  in February,
1995,  State  Auto Life  Insurance  Company  (via  merger of that  company  into
Investors-Indiana)  in 1997 and Grinnell Life  Insurance  Company (via merger of
that company into Investors-Indiana) in 1998.

Acquisitions

Strategy. The Company's strategy has been and continues to be to grow internally
and through  acquisitions,  while  maintaining  an  emphasis  on cost  controls.
Management   believes  that,  under  appropriate   circumstances,   it  is  more
advantageous to acquire  companies with books of in-force life insurance than to
produce new  business,  because  initial  underwriting  costs have  already been
incurred  and mature  business is  generally  less likely to  terminate,  making
possible more predictable  profit  analysis.  However,  the Company's  insurance
subsidiaries  continue to market those products that are profitable,  as well as
develop  new  products  and  streamline   distribution   channels.  See  "Agency
Operations". It is also management's belief that the continuing consolidation in
the life insurance industry presents attractive opportunities for the

                                       -4-
<PAGE>


Company to acquire life insurance  companies  that  complement or fit within the
Company's  existing  marketing   structure  and  product  lines.  The  Company's
objective  is  to  improve  the   profitability   of  acquired   businesses   by
consolidating and streamlining the administrative functions of these businesses,
eliminating  unprofitable  products  and  distribution  channels,  applying  its
marketing   expertise  to  the  acquired   company's  markets  and  agents,  and
benefitting  from  economies  of scale.  The  Company's  ability to make  future
acquisitions  will be  dependent  on its  being  able to  obtain  the  necessary
financing.  In addition,  since FIC has the same acquisition strategy as ILCO, a
conflict of interest could arise in the future between ILCO and FIC with respect
to acquisition opportunities.

Completed Acquisitions.

     a. Standard  Life. In November 1986,  the Company  acquired  Standard Life,
     headquartered  in  Jackson,  Mississippi,  for a gross  purchase  price  of
     $54,500,000.

     b.  Investors-NA and Investors-CA.  In December 1988, the Company,  through
     Standard  Life,   purchased   Investors-CA  and  Investors-NA   from  CIGNA
     Corporation for a purchase price of $140 million.

     c.  Investors-Indiana.  On February 14, 1995, ILCO,  through  Investors-NA,
     purchased from Meridian Mutual Insurance Company the stock of Meridian Life
     Insurance Company, an Indianapolis-based  life insurer, for a cash purchase
     price of $17.1 million.  After the  acquisition,  Meridian Life changed its
     name to Investors Life Insurance Company of Indiana ("Investors-Indiana").

     d. State Auto Life. On July 9, 1997,  ILCO and  Investors-Indiana  acquired
     State Auto Life Insurance  Company,  an Ohio  domiciled life insurer,  from
     State Automobile  Mutual Insurance  Company,  for an adjusted cash purchase
     price of $11.8 million. Under the terms of the transaction, State Auto Life
     was merged into Investors-Indiana.

     e. Grinnell Life. On June 30, 1998,  ILCO,  through a subsidiary,  acquired
     Grinnell Life Insurance Company  ("Grinnell Life") for an adjusted purchase
     price of $16.6 million.  A portion of the purchase  price ($12.37  million)
     was  paid by way of a  dividend  to the  seller  immediately  prior  to the
     closing of the  transaction;  the balance of the purchase price was paid by
     ILCO's  subsidiary.   As  part  of  the  transaction,   Grinnell  Life  was
     immediately  merged  with and into that  subsidiary,  with that  subsidiary
     being the surviving entity.

Merger of Insurance Subsidiaries.  Investors-NA redomesticated from Pennsylvania
to  Washington in December of 1992.  Investors-CA  merged into  Investors-NA  on
December 31, 1992, and Standard Life merged into  Investors-NA on June 29, 1993.
The mergers  have  achieved  cost  savings,  such as reduced  auditing  expenses
involved in auditing  one  combined  company;  the savings of expenses  and time
resulting  from the  combined  company  being  examined  by one state  insurance
department  (Washington),  rather  than  three  (California,   Pennsylvania  and
Mississippi); the reduction in the number of tax returns and other annual

                                       -5-

<PAGE>


filings  with 45 states;  and smaller  annual  fees to do  business  and reduced
retaliatory premium taxes in most states.

In December,  1997,  InterContinental  Life Insurance Company ("ILIC"),  an ILCO
subsidiary,  transferred  its  domicile  from New Jersey to  Indiana.  Following
completion of the redomestication, ILIC merged with Investors-Indiana, with ILIC
as the surviving  entity in the merger  process.  Immediately  after the merger,
ILIC changed its name to Investors  Life Insurance  Company of Indiana.  As used
hereinafter,  the  phrase  "Investors-IN"  shall be used to refer to the  merged
entities.  As a result of the merger,  Investors-IN is licensed in 47 states and
the  District of  Columbia.  As of December  31,  2000,  it had assets of $170.0
million and capital and surplus of $26.3 million.

Management  believes that these  acquisitions and  consolidations  have caused a
reduction in expenses and have further  strengthened the financial  condition of
the combined companies.

Operations

The Company has developed management  techniques to reduce operating expenses by
centralizing,  standardizing  and more  efficiently  performing  many  functions
common  to most  life  insurance  companies,  such as  underwriting  and  policy
administration,   accounting  and  financial  reporting,  marketing,  regulatory
compliance, actuarial services and asset management. The Company has selectively
recruited personnel in sales, marketing and various administrative departments.

As of December  31,  2000,  the number of  administrative  employees  within the
Company   and  its   subsidiaries   (including   employees   who  also   perform
administrative services for Family Life) was approximately 286 and the number of
regional vice  presidents  employed by the life  insurance  subsidiaries  of the
Company and FIC was 40.

Principal Products

The Company's  insurance  subsidiaries  are engaged  primarily in  administering
existing   portfolios  of  life   insurance   policies  and  annuity   products.
Approximately 79% of the total collected premiums for the year 2000 were derived
from renewal  premiums on insurance  policies and annuity  products  sold by the
insurance subsidiaries prior to their acquisition by the Company.

The  Company's  insurance  subsidiaries  are actively  engaged in marketing  and
underwriting individual life insurance and annuity products in 49 states and the
District  of  Columbia.   These  products  are  marketed  through   independent,
non-exclusive general agents.

The products  currently being distributed  include several versions of universal
life  insurance,   which  provide  permanent  life  insurance  protection  while
crediting  company-declared  current  interest  rates to the  cash  value of the
policy.  The  universal  life  insurance  portfolio of the  Company's  insurance
subsidiaries  consists  primarily of flexible  premium  universal life insurance
policies.  Under  the  flexible  premium  policies,  policyholders  may vary the
amounts of their coverage (subject to minimum and maximum limits) as well as the
dates and frequency of payments.


                                   -6-
<PAGE>



During  1999,  a marketing  subsidiary  of the Company  entered  into  marketing
agreement with a third- party life insurance  company.  The marketing  agreement
makes   available,   to  appointed   agents  of  the  Company's  life  insurance
subsidiaries,  a portfolio of term life insurance  products not currently  being
offered by the  subsidiaries.  The underwriting  risk on the products sold under
this arrangement is assumed by the third- party insurer. The Company's appointed
agents  receive  commissions  on the sales of these  products and the  Company's
marketing  subsidiary  receives  an override  commission.  This  initiative  was
expanded  during the year 2000 to include a  substantially  similar  arrangement
with another third-party life insurance company.

Direct  statutory  premiums  received from all types of universal  life products
were  $36.3  million in 2000,  as  compared  to $35.6  million in 1999 and $38.9
million in 1998.  Investors-NA received reinsurance premiums from Family Life of
$3.5 million in 2000,  pursuant to the reinsurance  agreement for universal life
products written by Family Life. In 2000, premium income from all life insurance
products  was  derived  from  all  states  in  which  the  Company's   insurance
subsidiaries are licensed,  with significant  amounts derived from  Pennsylvania
(14 %), California (8 %), New Jersey (7 %) and Ohio (8 %).

The Company's  insurance  subsidiaries  receive some premium  income from health
insurance  policies.  In 2000, premium income from all health insurance policies
was $0.7 million,  as compared to $0.8 million in 1999 and $1.0 million in 1998.
The health  insurance  business of the Company's  subsidiaries is 100% reinsured
with  a  third  party  reinsurer.  In  December,  1997,  ILCO's  life  insurance
subsidiaries  entered  into  a  reinsurance  treaty  under  which  most  of  the
contractual  obligations and risks under accident and health insurance  policies
were assumed by a third party  reinsurer.  The transfer was effective as of July
1, 1997. These risks and contractual obligations were sold pursuant to, first, a
coinsurance  reinsurance  agreement.  Following applicable regulatory approvals,
the  reinsurer  will  assume  the direct  obligations  of the  companies,  on an
assumption  reinsurance  basis. The decision to dispose of this book of business
was based on management's analysis that the business was not generating targeted
profit  objectives  and that the products  were not part of the core business of
the  subsidiaries.  The sale  permits  the  companies  to  focus on its  primary
business - life insurance and annuity sales.

Investors-NA  sponsors a variable annuity separate account,  which offers single
premium and flexible  premium  policies.  The policies  provide for the contract
owner to allocate  premium  payments among four  different  portfolios of Putnam
Variable  Trust (the  "Putnam  Fund"),  a series fund which is managed by Putnam
Investment  Management,  Inc. As of December  31,  2000,  the assets held in the
separate account were $42.3 million. During 2000, the premium income realized in
connection with these variable annuity policies was $85,402,  which was received
from existing contract owners.

Investors-NA  also maintains a closed variable  annuity separate  account,  with
approximately  $16.6  million of assets as of December  31,  2000.  The separate
account was closed to new  purchases in 1981, as a result of an IRS ruling which
adversely affected the status of variable annuity separate accounts which invest
in  publicly-available  mutual funds.  The ruling did not  adversely  affect the
status of in-force contracts.

                                       -7-

<PAGE>


For the past several years,  ILCO's life companies have expanded their marketing
efforts in the fixed  annuity  market.  Direct  deposits  from the sale of fixed
annuity  products  were $10.6  million in 2000,  as compared to $ 7.6 million in
1999 and $6.1 million in 1998.  Investors-NA also received  reinsurance premiums
from Family Life of $1.2 million in 2000,  pursuant to a  reinsurance  agreement
for annuity products between Investors-NA and Family Life Insurance Company.

In 1998, Investors-NA developed a group deposit administration product, designed
for use in connection with the funding of deferred compensation plans maintained
by  government  employers  under section 457 of the Internal  Revenue Code.  The
company  has   established   a  marketing   relationship   with  a   third-party
administrator based in San Antonio,  Texas, which has established  relationships
with school  districts  in Texas and  Louisiana.  Enrollments  under the program
commenced  during 1999, and contributed $0.9 million of the annuity premiums for
that year.  Annuity  premiums  from this  product for the year 2000 totaled $1.5
million.

The following table sets forth, for the three years ended December 31, 2000, the
combined  premium  income and other  considerations  received  by the  Company's
insurance subsidiaries from sales of their various lines of insurance.

<TABLE>

                                        Year Ended December 31,
<S>                                 <C>              <C>              <C>

Type of Insurance Premium          2000             1999             1998
                                                (in thousands)
Individual:
Life                           $  7,576           $ 10,647        $ 10,528
Accident & Health                   694                808             994
Total Individual Lines            8,270             11,455          11,522

Group:
Life                              4,231              3,164           2,323
Accident & Health                     0                  0              11
Total Group Lines                 4,231              3,164           2,334

Credit:
Life                                  0                (14)            (21)
Accident & Health                     0                 (1)             (3)
Total Credit Lines                    0                (15)            (24)

Total Premium                    12,501             14,604          13,832
Reinsurance Premiums Ceded       (1,628)            (3,472)         (2,942)
    Total Net Premium            10,873             11,132          10,890
Amount Received on
  Investment Type Contracts      49,924             45,536          48,739
     Total Premiums and
     Deposits Received         $ 60,797           $ 56,668        $ 59,629

</TABLE>

                                       -8-

<PAGE>
Investment of Assets

The  assets  held by the  Company's  insurance  subsidiaries  must  comply  with
applicable  state  insurance laws and  regulations  pertaining to life insurance
companies.  The investment portfolio of the Company's insurance  subsidiaries is
tailored to reflect the nature of the  insurance  obligations,  business  needs,
regulatory  requirements  and  tax  considerations  relating  to the  underlying
insurance  business with respect to such assets.  This is particularly  the case
with respect to interest-sensitive life insurance and deferred annuity products,
where the investment  emphasis is to obtain a targeted margin of profit over the
rate of interest  credited to  policyholders,  while endeavoring to minimize the
portfolio's  exposure to changing interest rates. To reduce the exposure to such
rate changes, portfolio investments are selected so that diversity, maturity and
liquidity   factors   approximate   the  duration  of  associated   policyholder
liabilities.

The investment objective of the Company's insurance subsidiaries  emphasizes the
selection of short to medium term high quality  fixed income  securities,  rated
Baa-3  (investment  grade) or better by Moody's  Investors  Service,  Inc. As of
December  31, 2000,  only 4.4% of the  Company's  total assets were  invested in
mortgage loans or real estate.  Non-affiliated  corporate debt  securities  that
were  non-investment  grade represented only 0.3 % of the Company's total assets
at December  31,  2000.  The  Company  had  investments  in debt  securities  of
affiliated corporations aggregating $35.3 million as of December 31, 2000.


                                       -9-
<PAGE>



Investments  in  mortgage-backed  securities  included  collateralized  mortgage
obligations   ("CMOs")  of  $175.7  million  and  mortgage-backed   pass-through
securities of $42.9 million at December 31, 2000.  Mortgage-backed  pass-through
securities,  sequential CMOs and support bonds,  which  comprised  approximately
54.3% of the book value of the Company's mortgage-backed  securities at December
31, 2000,  are sensitive to  prepayment  and  extension  risks.  The Company has
reduced the risk of prepayment  associated  with  mortgage-backed  securities by
investing in planned amortization class ("PAC") instruments, target amortization
class ("TAC")  instruments,  accretion directed bonds and scheduled bonds. These
investments  are  designed to amortize in a  predictable  manner by shifting the
risk of prepayment  of the  underlying  collateral  to other  investors in other
tranches  ("support  classes") of the CMO. PAC and TAC instruments and accretion
directed and scheduled bonds represented approximately 45.7 % and sequential and
support  classes  represented  approximately  34.7 % of the  book  value  of the
Company's  mortgage-  backed  securities at December 31, 2000. In addition,  the
Company  limits the risk of  prepayment  of CMOs by not paying a premium for any
CMOs. The Company does not invest in  mortgage-backed  securities with increased
prepayment  risk, such as  interest-only  stripped  pass-through  securities and
inverse floater bonds.  ILCO did not have any z-accrual bonds as of December 31,
2000. The prepayment risk that certain mortgage-backed securities are subject to
is prevalent in periods of  declining  interest  rates,  when  mortgages  may be
repaid  more  rapidly  than  scheduled  as  individuals  refinance  higher  rate
mortgages to take advantage of the lower current rates. As a result,  holders of
mortgage-backed  securities may receive large  prepayments on their  investments
which cannot be  reinvested  at an interest  rate  comparable to the rate on the
prepaying mortgages.

The Company does not invest in non-agency mortgage-backed securities, which have
a greater credit risk than that of agency mortgage-backed securities.

The  Company  does  not  make  new  mortgage  loans  on  commercial  properties.
Substantially all of the Company's  mortgage loans were made by its subsidiaries
prior to their  acquisition  by the Company.  At December 31, 2000,  none of the
mortgage loans held by the Company had defaulted as to principal or interest for
more than 90 days, and none of the Company's mortgage loans were in foreclosure.



                                      -10-
<PAGE>



Another  key  element of the  Company's  investment  strategy  is to avoid large
exposure in other investment  categories which the Company believes carry higher
credit or liquidity risks,  including private placements,  partnerships and bank
participations.  These  categories  accounted  for  approximately  0.2%  of  the
Company's invested assets at December 31, 2000.

The  Company's  subsidiaries  make  investments  in real  property,  subject  to
regulatory  limitations.  In October,  1998,  Investors-NA purchased River Place
Pointe,  two adjoining  tracts of land located in Austin,  Texas totaling 47.995
acres. The aggregate purchase price for these tracts was $8.1 million.  Prior to
the closing of the transaction,  Investors-NA obtained a Site Development Permit
for the tracts from the City of Austin.  The Site Development  Permit allows for
the  construction of seven office  buildings  totaling 600,000 square feet, with
associated parking,  drives and related improvements.  Construction on the first
phase of the Project,  which  consists of two office  buildings,  an  associated
parking garage, and related infrastructure was completed during 2000. The second
phase of construction,  which includes two more office buildings, is in progress
and  Investors-NA  expects  completion  of this  phase by the end of the  second
quarter  of  2001.

The Company has established and staffed an investment department,  which manages
portfolio  investments  and  investment  accounting  functions  for ILCO's  life
insurance subsidiaries.

Agency Operations

ILCO's  insurance  subsidiaries  collectively  market  through  the  "Investors"
distribution  system.  Independent  non-exclusive  agents,  general  agents  and
brokers are recruited nation-wide to sell the products.  Such agents and brokers
also sell insurance  products for companies in competition with ILCO's insurance
subsidiaries.  In order to attract  agents and enhance the sale of its products,
the  Company's  insurance  subsidiaries  pay  competitive  commission  rates and
provide other sales  inducements.  The Investors  sales  distribution  system is
presently concentrating its efforts on the promotion and sale of universal life,
term life and fixed annuity products.

Marketing and sales for all of the Company's insurance subsidiaries are directed
by the  Executive  Vice  President  of  Marketing  and Sales.  The  Senior  Vice
President  for  Investors  Sales  directs   Regional  Vice  Presidents  who  are
responsible  for the  recruitment  and  maintenance  of the  general  agents and
managing general agents for individual insurance sales. During 1999, the Company
implemented a plan to restructure

                                      -11-

<PAGE>


the compensation  arrangements for Regional Vice Presidents,  so as to emphasize
the role of personal  production by the RVPs. The effect of this plan during the
year 2000 was to lower fixed costs for distribution of the Company's products.

Data Processing

The data  processing  needs of ILCO's  insurance  subsidiaries  are  provided to
ILCO's Austin, Texas facilities by FIC Computer Services,  Inc., a subsidiary of
FIC.  See  Item  13 -  "Certain  Relationships  and  Related  Transactions  with
Management."

As the  provider of data  processing  for the Company and its  subsidiaries  and
affiliates,  FIC Computer Services,  Inc. utilizes a centralized computer system
to process  policyholder  records and financial  information.  In addition,  the
Company  uses   non-centralized   computer  terminals  in  connection  with  its
operations.

In response  to the  potential  operations  and policy  administration  problems
caused by the computer calendar change on January 1, 2000, the management of the
Company   instructed  FIC  Computer   Services,   Inc.  to  analyze  its  system
capabilities and the operational  requirements of the Company and its respective
subsidiaries  and  affiliates  with  respect  to the Y2K  problem.  The  Company
developed  a Year 2000 Plan and began the major work under the Year 2000 Plan in
1997.  The work,  including  extensive  testing of the  converted  systems,  was
completed  during the fourth quarter of 1999. The Company did not experience any
material  disruptions  in the processing of its business as a result of the Year
2000 date change.

Under  the  Year  2000  Plan,  FIC  Computer  Services,  Inc.  utilized  its own
personnel, acquired Y2K compliant operating software, and engaged the assistance
of outside  consultants to facilitate the systems conversions and modifications.
For the twelve  month period ended  December 31, 1999,  the Company  incurred an
after tax cost of approximately  $195,000 in connection with the Year 2000 Plan,
as compared to an after tax expense of approximately $158,000 for the year ended
December 31, 1998.  In the year ended  December 31, 2000,  the Company  incurred
$90,000 in pre-tax  expenses  related to the Year 2000 Plan, in connection  with
bonus payments made to management employees for Year 2000 Plan-related work.

Competition

There are many life and  health  insurance  companies  in the United  States.  A
significant  number of casualty  companies also market health insurance.  Agents
placing  insurance   business  with  ILCO's  life  insurance   subsidiaries  are
compensated  on  a  commission  basis.   However,   some  companies  pay  higher
commissions  and  charge  lower  premium  rates  and many  companies  have  more
substantial resources.

The principal cost and competitive  factors that affect the Company's ability to
sell its life insurance and annuity  products on a profitable basis are: (1) the
general level of premium rates for comparable products;

                                      -12-


<PAGE>

(2) the extent of  individual  policyholder  services  required to service  each
product category;  (3) general interest rate levels; (4) competitive  commission
rates and related  marketing costs; (5) legislative and regulatory  requirements
and  restrictions;  (6) the impact of competing  insurance  and other  financial
products; and (7) the condition of the regional and national economies.

Reinsurance and Reserves

Reinsurance  Ceded.  In  accordance  with  general  practices  in the  insurance
industry, the Company's insurance subsidiaries limit the maximum net losses that
may arise from large risks by reinsuring with other carriers.  Such  reinsurance
provides for a portion of the mortality  risk to be retained  (the  "Retention")
with the excess  being ceded to a reinsurer at a premium set forth in a schedule
based  upon the age and risk  classification  of the  insured.  The  reinsurance
treaties provide for allowances that help the Company's  insurance  subsidiaries
offset the expense of writing new business.  Investors-IN  generally retains the
first $100,000 of risk on the life of any individual, depending upon the type of
coverage  being issued.  Investors-NA  generally  retains the first  $100,000 to
$250,000  of  risk on the  life  of any  individual,  depending  on the  type of
coverage being issued.

Investors-NA  maintains a bulk reinsurance treaty,  under which it reinsures all
of its risks  under  accidental  death  benefit  policies.  The  treaty was most
recently renegotiated with the current reinsurer in January, 1997.

As discussed above (see "Principal  Products"),  in December,  1997, ILCO's life
insurance  subsidiaries entered into a reinsurance treaty under which all of the
contractual obligations and risks under individual accident and health insurance
policies were assumed by a third party reinsurer.

Although  reinsurance does not eliminate the exposure of the Company's insurance
subsidiaries   to  losses  from  risks  insured,   the  net  liability  of  such
subsidiaries will be limited to the portion of the risk retained,  provided that
the reinsurers meet their contractual obligations.

The  Company's  insurance  subsidiaries  carry  reserves  on their books to meet
future obligations under their outstanding insurance policies. Such reserves are
believed  to be  sufficient  to meet policy  obligations  as they mature and are
calculated using assumptions for interest,  mortality,  expenses and withdrawals
in effect at the time the policies were issued.

Reinsurance Assumed. In 1995,  Investors-NA entered into a reinsurance agreement
with Family Life pertaining to universal life insurance  written by Family Life.
The reinsurance agreement is on a co- insurance basis and applies to all covered
business  with  effective  dates on and after  January  1, 1995.  The  agreement
applies to only that portion of the face amount of the policy which is less than
$200,000;  face amounts of $200,000 or more are  reinsured by Family Life with a
third  party  reinsurer.  In 1996,  Investors-  NA  entered  into a  reinsurance
agreement with Family Life,  pertaining to annuity  contracts  written by Family
Life.  The agreement  applies to contracts  written on or after January 1, 1996.


                                      -13-


<PAGE>

These reinsurance  arrangements  reflect  management's plan to develop universal
life and annuity business at Investors-NA, with Family Life concentrating on the
writing of term life insurance products.

FIC's Acquisition of Control of the Company

In January,  1985,  FIC acquired  26.53% of ILCO's common stock.  FIC and Family
Life  subsequently  acquired  additional shares of ILCO's common stock and as of
March  6,  2001,  FIC  owned,  directly  and  indirectly  through  Family  Life,
approximately 48.3% of the outstanding shares of ILCO's common stock.

FIC's Acquisition of Family Life

After FIC acquired control of ILCO,  FIC's primary  involvement in the insurance
industry  was  its  indirect  investment,  through  ILCO,  in  ILCO's  insurance
subsidiaries. In June 1991, FIC acquired Family Life Insurance Company, ("Family
Life"), based in Seattle,  Washington,  from Merrill Lynch Insurance Group, Inc.

Family Life  specializes in underwriting  and selling  mortgage  protection life
insurance to customers who are mortgage  borrowers from  financial  institutions
where  Family Life has  marketing  relationships.  Family Life  distributes  its
insurance  products primarily through a national career sales force in 49 states
and the District of Columbia.

The $114 million purchase price for Family Life and an additional $5 million for
transaction costs,  working capital and other related purposes were financed by:
(a) a $50 million  senior loan  provided by a group of banks,  (b) a$44  million
subordinated  notes issued to the seller and its  affiliates and (c) $25 million
senior subordinated notes issued to Investors-CA and Investors-NA.  In addition,
FIC granted to Investors-CA and Investors-NA nontransferable options to purchase
up to a total of 9.9% of FIC's  common  stock at a price of  $10.50  per  share,
equivalent to the then current  market  price,  subject to adjustment to prevent
dilution.  As a result  of the  five-for-one  stock  split  implemented  by FIC,
effective in November,  1996,  the exercise  price of the options was changed to
$2.10 per share.  The initial terms of the option provided for their  expiration
on June 12, 1998,  if not  previously  exercised.  In  connection  with the 1996
amendments to the subordinated  loans held by Investors-NA,  the expiration date
of the options was extended to September 12, 2006.  For a discussion of the 1996
amendments,  see Item 13 - "Certain  Relationships and Related Transactions with
Management." In July,  1993, the  subordinated  notes held by the seller and its
affiliates  were  prepaid.  The  primary  source of the funds used to prepay the
subordinated  debt was a new  subordinated  loan of $34.5 million  obtained from
Investors-NA.

Senior Loan

The Senior  Loan of ILCO was  originally  arranged in  connection  with the 1988
acquisition of  Investors-NA  and  Investors-CA.  In January,  1993, the Company
refinanced its Senior Loan.  That  transaction  was done in connection  with the
prepayment of the  subordinated  indebtedness and the purchase of warrants which


                                      -14-

<PAGE>

had been issued as part of the financing of the 1988 acquisitions.  The terms of
the amended and restated credit facility are substantially the same as the terms
and  provisions  of the 1988 senior  loan.  The  maturity  date,  which had been
December 31, 1996, was extended to July 1, 1998 for the Senior Loan. The average
interest  rate paid by the  Company on its Senior Loan was  approximately  7.63%
during 1998.

In February,  1995,  the Company  borrowed an  additional  $15 million under the
Senior Loan to help finance the  acquisition of  Investors-IN,  and the maturity
date of the Senior Loan was further extended to July 1, 1999. In connection with
the acquisition of State Auto Life Insurance  Company in July,  1997, the Senior
Loan agreement was modified to extend the maturity date to October 1, 1998.

As of December 31, 1997, the outstanding principal balance of ILCO's senior loan
obligations was $11.0 million,  which reflected the prepayment by the Company of
the payment originally  scheduled for January 1, 1998. A regular payment, in the
amount of $3.7  million,  was made on April 1, 1998 and a prepayment of the July
1, 1998 installment,  in the amount of $3.7 million,  was made on June 30, 1998.
The  outstanding  principal  balance of ILCO's senior loan  obligations was $3.6
million at June 30, 1998. The final  installment  on the senior loan  obligation
scheduled  for October 1, 1998,  was prepaid on September 30, 1998. As a result,
the senior loan obligation of ILCO was fully discharged  effective September 30,
1998.

Regulation

General.  The Company and its insurance  subsidiaries  are subject to regulation
and supervision at both the state and Federal level,  including regulation under
federal and state securities laws and regulation by the states in which they are
licensed to do business. The state insurance regulation is designed primarily to
protect policy owners.  Although the extent of regulation  varies by state,  the
respective state insurance departments have broad administrative powers relating
to the granting and  revocation of licenses to transact  business,  licensing of
agents,  the regulation of trade  practices and premium  rates,  the approval of
form  and  content  of  financial  statements  and the  type  and  character  of
investments.

These laws and  regulations  require the  Company's  insurance  subsidiaries  to
maintain  certain minimum surplus levels and to file detailed  periodic  reports
with the  supervisory  agencies  in each of the states in which they do business
and their  business and accounts are subject to  examination by such agencies at
any time. The insurance laws and  regulations of the  domiciliary  states of the
Company's insurance  subsidiaries  require that such subsidiaries be examined at
specified intervals.

Investors-NA  and  Investors-IN  are domiciled in the states of  Washington  and
Indiana,  respectively.  In December,  1992,  Investors-NA  redomesticated  from
Pennsylvania to Washington, and Investors-CA merged into Investors-NA.  In June,
1993,  Standard  Life  merged  into  Investors-NA.   Prior  to  December,  1997,
Investors-IN  was  domiciled  in the State of New  Jersey.  In  December,  1997,
Investors-IN transferred its domicile to the State of Indiana.


                                      -15-
<PAGE>


A number of states regulate the manner and extent to which  insurance  companies
may test for acquired immune deficiency syndrome (AIDS) antibodies in connection
with the  underwriting of life insurance  policies.  To the extent  permitted by
law,  the  Company's  insurance   subsidiaries   consider  AIDS  information  in
underwriting  coverage and  establishing  premium  rates.  An  evaluation of the
financial  impact of future AIDS claims is extremely  difficult,  due in part to
insufficient  and conflicting data regarding the incidence of the disease in the
general  population  and the  prognosis  for the probable  future  course of the
disease.

Risk-Based  Capital   Requirements.   The  National   Association  of  Insurance
Commissioners  ("NAIC") has imposed Risk-Based  Capital ("RBC")  requirements to
evaluate the adequacy of statutory capital and surplus in relation to investment
and insurance  risks  associated  with;  (i) asset  quality;  (ii) mortality and
morbidity;  (iii) asset and liability matching; and (iv) other business factors.
The RBC  formula is  intended  to be used by  insurance  regulators  as an early
warning tool to discover potential weakly capitalized  companies for the purpose
of initiating  regulatory  action. The RBC requirements are not intended to be a
basis for ranking the relative  financial strength of insurance  companies.  The
formula also defines a new minimum  capital  standard which will  supplement the
prevailing  system of low fixed minimum  capital and surplus  requirements  on a
state-by-state basis.

The RBC requirements  provide for four different levels of regulatory  attention
in those states that adopt the NAIC  regulations,  depending on the ratio of the
company's  Total  Adjusted  Capital  (which  generally  consist of its statutory
capital,  surplus and asset valuation  reserve) to its Authorized  Control Level
RBC. A "Company  Action Level Event" is triggered if a company's  Total Adjusted
Capital is less than 200% but  greater  than or equal to 150% of its  Authorized
Control  Level  RBC,  or if a negative  trend has  occurred  (as  defined by the
regulations)  and Total Adjusted Capital is less than 250% but more than 200% of
its Authorized  Control Level RBC. When a Company Action Level Event occurs, the
company  must submit a  comprehensive  plan to the  regulatory  authority  which
discusses  proposed  corrective  actions  to improve  its  capital  position.  A
"Regulatory  Action  Level Event" is  triggered  if a company's  Total  Adjusted
Capital is less than 150% but  greater  than or equal to 100% of its  Authorized
Control Level RBC. When a Regulatory  Action Level Event occurs,  the regulatory
authority  will perform a special  examination of the company and issue an order
specifying  corrective  actions that must be followed.  An  "Authorized  Control
Level  Event" is triggered if a company's  Total  Adjusted  Capital is less than
100% but greater than or equal to 70% of its  Authorized  Control Level RBC, and
the  regulatory  authority  may take any  action it deems  necessary,  including
placing the company under regulatory  control. A "Mandatory Control Level Event"
is  triggered  if a  company's  total  adjusted  capital is less than 70% of its
Authorized Control Level RBC, and the regulatory  authority is mandated to place
the company under its control.

Calculations  using the NAIC formula and the statutory  financial  statements of
the Company's  insurance  subsidiaries as of December 31, 2000 indicate that the
Total Adjusted Capital of each of the Company's insurance  subsidiaries is above
560% of its respective Authorized Control Level RBC.

Solvency Laws Assessments. The solvency or guaranty laws of most states in which
the  Company's  insurance  subsidiaries  do business  may require the  Company's
insurance subsidiaries to pay assessments


                                      -16-

<PAGE>


(up to certain prescribed limits) to fund policyholder  losses or liabilities of
insurance  companies that become  insolvent.  Recent  insolvencies  of insurance
companies increase the possibility that such assessments may be required.  These
assessments  may be deferred or forgiven  under most guaranty laws if they would
threaten an  insurer's  financial  strength  and, in certain  instances,  may be
offset against future premium taxes. The insurance  companies record the expense
for  guaranty  fund  assessments  in the  period  assessed.  For the year  ended
December 31, 2000, the Company's insurance subsidiaries received a net credit on
their guaranty fund assessment  returns of $24,136,  as compared to a net credit
of $13,478 for the year ended  December 31, 1999.  The  likelihood and amount of
any other future  assessments  cannot be estimated and are beyond the control of
the Company,  however, we believe that assessments with respect to other pending
insurance  company  impairments  and  insolvencies  will not be  material to our
business, financial condition or results of operations.

Dividends.  ILCO is a holding company and as such depends primarily on dividends
from  its  insurance  subsidiaries  to  pay  operating  expenses.   Washington's
insurance code, which governs the dividends  payable by  Investors-NA,  includes
the "greater of"  standard  for payment of  dividends to  shareholders,  but has
requirements  that prior  notification  of a proposed  dividend  be given to the
Washington Insurance  Commissioner and that cash dividends may be paid only from
earned surplus.  Under the "greater of" standard,  an insurer may pay a dividend
in an amount equal to the greater of (i) 10% of policyholder surplus or (ii) the
insurer's  net gain from  operations  for the previous  year. As of December 31,
2000, Investors-NA had earned surplus of $69.1 million.

Investors-IN is domiciled in the State of Indiana.  Under the Indiana  insurance
code, a domestic insurer may make dividend  distributions  upon proper notice to
the  Department  of  Insurance,  as long as the  distribution  is  reasonable in
relation to adequate  levels of  policyholder  surplus and quality of  earnings.
Under Indiana law the dividend must be paid from earned  surplus.  Extraordinary
dividend  approval would be required where a dividend exceeds the greater of 10%
of  surplus  or the  net  gain  from  operations  for  the  prior  fiscal  year.
Investors-IN had earned surplus of $23.8 million at December 31, 2000.

Valuation Reserves.  Life insurance companies are required to establish an Asset
Valuation  Reserve  ("AVR")  consisting  of  two  components:   (i)  a  "default
component,"  which provides for future  credit-related  losses on fixed maturity
investments,  and (ii) an "equity  component,"  which provides for losses on all
types of  equity  investments,  including  equity  securities  and real  estate.
Insurers are also required to establish an Interest Maintenance Reserve ("IMR"),
designed to defer realized capital gains and losses due to interest rate changes
on fixed income  investments  and to amortize those gains and losses into future
income.  The IMR is required to be amortized into statutory  earnings on a basis
reflecting  the remaining  period to maturity of the fixed  maturity  securities
sold. These reserves are required by state insurance  regulatory  authorities to
be  established  as  a  liability  on  a  life  insurer's   statutory  financial
statements,  but do not affect the financial  statements  prepared in accordance
with GAAP.  Management  believes  that the  combination  of the AVR and IMR will
affect statutory capital and surplus and may reduce the ability of the Company's
insurance subsidiaries to pay dividends to ILCO.

                                      -17-


<PAGE>

Insurance Holding Company Regulation.  Investors-NA and Investors-IN are subject
to regulation  under the insurance and  insurance  holding  company  statutes of
Washington and Indiana.  The insurance holding company laws and regulations vary
from   jurisdiction  to  jurisdiction,   but  generally  require  insurance  and
reinsurance  subsidiaries  of insurance  holding  companies to register with the
applicable  state  regulatory  authorities  and to file with  those  authorities
certain reports  describing,  among other information,  their capital structure,
ownership,  financial condition,  certain intercompany  transactions and general
business  operations.  The insurance holding company statutes also require prior
regulatory agency approval or, in certain circumstances, prior notice of certain
material  intercompany  transfers  of  assets  as well as  certain  transactions
between insurance companies, their parent companies and affiliates.

Under the  Washington and Indiana  insurance  holding  company laws,  unless (i)
certain  filings are made with the  respective  department  of  insurance,  (ii)
certain  requirements are met,  including a public hearing and (iii) approval or
exemption is granted by the  respective  insurance  commissioner,  no person may
acquire any voting security or security convertible into a voting security of an
insurance  holding  company,  such as the Company,  which  controls an insurance
company  domiciled in that state, or merge with such a holding company,  if as a
result of such  transaction  such person would  "control" the insurance  holding
company.  "Control" is presumed to exist if a person directly or indirectly owns
or controls 10% or more or the voting securities of another person.

The  Financial  Services  Modernization  Act. On November  12,  1999,  President
Clinton signed into law the Financial Services Modernization Act (referred to in
this paragraph as the "Act") of 1999,  implementing  fundamental  changes in the
regulation of the financial  services industry in the United States. In general,
the Act provides  that  financial  institutions  have certain  obligations  with
respect to the  maintenance  of the  privacy of customer  information,  so as to
insure the security and confidentiality of customer records and information,  to
protect against any anticipated  threats or hazards to the security or integrity
of these  records  and to protect  against  unauthorized  access or use of these
records or information  which could result in substantial  harm or inconvenience
to any customer.  In addition,  the Act places new restrictions on disclosure of
nonpublic personal  information to third party  institutions  seeking to utilize
such  information  in  connection  with  the sale of  products  or  services.  A
financial  institution may disseminate certain types of customer  information to
nonaffiliated  third parties if the  institution  provides clear and conspicuous
disclosure of the institution's  privacy policy and the customer  authorizes the
release of certain information to third parties.  Where the customer permits the
release of the information,  the Act restricts disclosure of information that is
non-public in nature but does not prohibit the release of information  which can
be  obtained  from  public  sources.  The  passage  of the Act  and  regulations
pertaining  thereto may adversely  affect  ILCO's  insurance  subsidiaries  from
utilizing  certain  sales  methods;  however,  at this  time,  ILCO is unable to
determine to what extent the final  regulations  will impact the sales practices
of ILCO's insurance subsidiaries.

Potential Federal Regulation. Although the federal government generally does not
directly  regulate the insurance  industry,  federal  initiatives  often have an
impact on the business.  Congress and certain federal agencies are investigating
the current  condition of the  insurance  industry  (encompassing  both life and
health and  property and casualty  insurance)  in the United  States in order to
decide  whether  some  form of  federal  role  in the  regulation  of  insurance
companies  would be appropriate.  Congress is currently  conducting a variety of
hearings relating in general to the solvency of insurers.  It is not possible to
predict the outcome of any such congressional activity nor the potential effects
thereof on the Company's insurance subsidiaries.


                                      -18-



<PAGE>


Federal  Income  Taxation.  The Revenue  Reconciliation  Act of 1990 amended the
Internal  Revenue Code of 1986 to require a portion of the expenses  incurred in
selling insurance  products to be deducted over a period of years, as opposed to
an immediate deduction in the year incurred.  Since this change only affects the
timing  of the  deductions,  it does  not  affect  tax  expense  as shown on the
Company's  financial  statements prepared in accordance with GAAP. For the years
ended December 31, 1998,  1999 and 2000, the decreases in the current income tax
provisions  of the  Company's  insurance  subsidiaries  due to this  change were
$253,411, $409,193 and $8,368 respectively. The change has a negative tax effect
for  statutory  accounting  purposes  when the premium  income of the  Company's
insurance  subsidiaries  increases,  but has a positive  tax  effect  when their
premium income decreases.
                               Segment Information

The  principal  operations  of the  Company's  insurance  subsidiaries  are  the
underwriting of life insurance and annuities.  Accordingly,  no separate segment
information  is required to be provided  by the  Registrant  for the  three-year
period ending December 31, 2000.

Item 2. Properties

ILCO's  home office is located at River Place  Pointe,  6500 River Place  Blvd.,
Building One, Austin, Texas. River Place Pointe was purchased by Investors-NA on
October 29, 1998. It consists of two adjoining tracts of land located in Austin,
Texas totaling 47.995 acres.  The aggregate  purchase price for these tracts was
$8.1  million.  Prior to the closing of the purchase  transaction,  Investors-NA
obtained a Site Development  Permit for the tracts from the City of Austin.  The
Site  Development  Permit allows for the  construction of seven office buildings
totaling  600,000  square  feet,  with  associated  parking,  drives and related
improvements.  Construction on the first phase of the Project, which consists of
two office buildings,  an associated parking garage, and related infrastructure,
was completed during 2000. The second phase of construction,  which includes two
more office  buildings,  is in progress and Investors-NA  expects  completion of
this  phase by the end of the  second  quarter  of  2001.  ILCO,  FIC and  their
insurance  subsidiaries  occupy  almost the entire  Building  One of River Place
Pointe, consisting of approximately 74,021 square feet of space.

ILCO leases a building located at 40 Parker Road,  Elizabeth,  New Jersey.  This
building,  which was  formerly the  Company's  headquarters  building,  contains
approximately  41,000  square  feet of office  space.  The  lease was  signed in
December,  1985 and  expires in  December,  2005,  and calls for a minimum  base
rental of $450,000 per annum. The lease provides that all costs  including,  but
not limited to, those for maintenance,  repairs, insurance and taxes be borne by
ILCO. The Company sub-leases the space in the property to third parties.

                                      -19-

<PAGE>




Investors-IN  owns three  residential  buildings  which are  adjacent  to the 40
Parker Road building. One residence,  which is leased to a third party, contains
approximately   3,000  square  feet  of  space.  The  second  building  contains
approximately  2,000  square  feet of space and is leased to persons who perform
maintenance services for Investors-IN's and ILCO's properties in Elizabeth,  New
Jersey.  The third building contains  approximately  3,000 square feet of space,
and is partially leased to third parties.

The Company  believes that its  properties and leased space are adequate to meet
its foreseeable requirements.


Item 3. Legal Proceedings

The Company and  Investors-NA  are  defendants  in a lawsuit  which was filed in
October, 1996, in Travis County, Texas. CIGNA Corporation, an unrelated company,
is also a named  defendant in the lawsuit.  The named  plaintiffs in the suit (a
husband and wife),  allege that the universal  life  insurance  policies sold to
them by INA Life Insurance Company (a company which was merged into Investors-NA
in 1992) utilized unfair sales practices.  The named plaintiffs seek reformation
of the life insurance contracts and an unspecified amount of damages.  The named
plaintiffs  also seek a class action as to similarly  situated  individuals.  No
certification  of a class has been  granted as of the date  hereof.  The Company
believes that the suit is without  merit and intends to  vigorously  defend this
matter.

Additionally,   ILCO's  insurance   subsidiaries   are  regularly   involved  in
litigation,  both as a defendant and as  plaintiff.  The  litigation  naming the
insurance  subsidiaries  as defendant  ordinarily  involves our  activities as a
provider of insurance  protection  products.  Management of the Company does not
believe that such litigation, either individually or in the aggregate, will have
a material  adverse  effect on the Company's  business,  financial  condition or
results of operations.


Item 4. Submission of Matters to a Vote of Security Holders

No matter  was  submitted  during the  fourth  quarter of the fiscal  year ended
December 31, 2000 to a vote of security holders.


                                      -20-


<PAGE>

                                     PART II


Item 5.  Market for the Company's Common Stock and Related Stockholder Matters

A. Market Information

ILCO's common stock is traded in the Nasdaq  Small-Cap  Market  (NASDAQ  Symbol:
ILCO).  The following  table sets forth the quarterly  high and low sales prices
for the Company's  common stock for 2000 and 1999.  Quotations  are furnished by
the National  Association  of  Securities  Dealers  Automated  Quotation  System
(NASDAQ).

                                                     Prices
                                          High                    Low

2000:
1st Quarter. . . . . . .                 $10.25                $ 8.6875
2nd Quarter. . . . . . .                  10.00                  7.9375
3rd Quarter. . . . . . .                   9.75                  8.875
4th Quarter. . . . . . .                  10.625                 9.00

1999:
1st Quarter. . . . . . .                 $10.00                $ 8.250
2nd Quarter. . . . . . .                   9.875                 7.00
3rd Quarter. . . . . . .                  11.50                  9.250
4th Quarter. . . . . . .                  10.50                  9.188


B. Holders

The  approximate  number of record holders of the common stock of the Registrant
as of March 15, 2001 was 1,349.

C. Dividends

No dividend was declared or paid by the Company during 2000.

In 1999,  the Company paid a stock dividend in the amount of one share of common
stock for each share of common  stock issued and  outstanding.  The dividend was
paid on March 17, 1999, to holders of record on March 8, 1999.

The ability of an insurance  holding company,  such as ILCO, to pay dividends to
its shareholders may be limited by the company's  ability to obtain revenue,  in
the  form  of  dividends  and  other  payments,  from  its  operating  insurance
subsidiaries.  The right of such  subsidiaries  to pay  dividends  is  generally
restricted  by the  insurance  laws of  their  domiciliary  states.  See Item 1-
"Business- Regulation - Dividends."

                                      -21-


<PAGE>



Item 6. Selected Financial Data (in thousands, except per share data.)
<TABLE>
                                           Years Ended December 31,
<S>                             <C>            <C>             <C>            <C>             <C>

                               2000           1999            1998           1997          1996

Revenues                  $  103,756     $  104,205      $  109,462     $  127,683    $  138,244
Benefits & Expenses           84,669         85,466          91,876         96,081        96,801
Income from operations        19,087         18,739          17,586         31,602        41,443
Provisions for federal
 income taxes                  7,021          5,974           6,467         11,062        14,505

Net Income                $   12,066     $   12,765      $   11,119     $   20,540    $   26,938


Common Stock and
 Common Stock
 Equivalents 1                 8,343          8,800           8,924          8,738         8,882
Net income per share 1,  2
Basic                     $     1.45     $     1.45      $     1.27     $     2.38    $     3.18
Diluted                   $     1.45     $     1.45      $     1.25     $     2.35    $     3.04
Cash Dividend                     -0-            -0-             -0-            -0-           -0-
Long Term Debt                    -0-            -0-             -0-    $   10,964    $   24,944
Total Assets              $1,307,615     $1,321,199      $1,350,248     $1,321,653    $1,263,942
</TABLE>

1. Data for the years 1996 to 1998 has been  restated  to reflect  the effect of
the stock dividend which was paid on March 17, 1999.

2. Net  income  per share for the year 1996 has been  restated  to  reflect  the
effect of FAS 128.


                                      -22-


<PAGE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Following is a discussion  and analysis of the  financial  statements  and other
statistical  data that  management  believes will enhance the  understanding  of
ILCO's financial condition and results of operations.  This discussion should be
read in conjunction with the financial statements beginning on page F-1.

                           Forward-Looking Statements

Except  for  historical  factual  information  set  forth  in this  Management's
Discussion  and  Analysis,  the  statements,  analyses,  and  other  information
contained  herein  relating to trends in the Company's  operations and financial
results,  the markets for the Company's products,  the future development of the
Company's business, and the contingencies and uncertainties to which the Company
may  be  subject,   as  well  as  other  statements   including  words  such  as
"anticipate,"  "believe,"  "path,"  "estimate,"  "expect,"  "intend"  and  other
similar  expressions  constitute  forward-looking  statements  under the Private
Securities  Litigation  Reform Act of 1995.  Such statements are made based upon
management's  current expectations and beliefs concerning the financial results,
economic  conditions and are subject to known and unknown  risks,  uncertainties
and other factors contemplated by the forward-looking  statements.  Such factors
include,  among other things: (1) general economic conditions and other factors,
including  prevailing interest rate levels and stock market  performance,  which
may effect the ability of ILCO to sell its products,  the market value of ILCO's
investments and the lapse rate and profitability of policies; (2) ILCO's ability
to  achieve  anticipated  levels of  operational  efficiencies  and  cost-saving
initiatives;  (3) customer response to new products,  distribution  channels and
marketing  initiatives;  (4)  mortality,  morbidity  and other factors which may
affect  the  profitability  of ILCO's  insurance  products;  (5)  changes in the
Federal  income  tax laws and  regulations  which may affect  the  relative  tax
advantages of some of ILCO's products; (6) increasing competition in the sale of
insurance and annuities;  (7)  regulatory  changes or actions,  including  those
relating to  regulation  of insurance  products  and  insurance  companies;  (8)
ratings  assigned  to  ILCO's  insurance   subsidiaries  by  independent  rating
organizations  such as A.M. Best Company,  which ILCO believes are  particularly
important  to the sale of  annuity  and  other  accumulation  products;  and (9)
unanticipated  litigation.  There can be no  assurance  that other  factors  not
currently  anticipated  by  management  will not also  materially  and adversely
affect ILCO.

           Results of Operations - Three Years Ended December 31, 2000

Net income from continuing  operations was $12,066,000  (basic earnings of $1.45
per common  share,  or diluted  earnings of $1.45 per common share) for the year
ended December 31, 2000, as compared to $12,765,000 (basic earnings of $1.45 per
common share, or diluted  earnings of $1.45 per common share) for the year ended
December 31, 1999 and $11,119,000  (basic earnings of $1.27 per common share, or
diluted  earnings  of $1.25 per common  share) for the year ended  December  31,
1998.  Earnings  per share are stated in  accordance  with the  requirements  of
Financial  Accounting  Standard (FAS) No. 128, which establishes two measures of
earnings per share:  basic  earnings  per share and diluted  earnings per share.
Basic  earnings  per share is computed by dividing  income  available  to common
shareholders by the weighted average number of common shares  outstanding during
the period. Diluted earnings per share reflect the potential dilution that would
occur if securities or other  contracts to issue common stock were  converted or
exercised.  For the year 1998,  earnings per share have been restated to reflect
the effect of the stock dividend which was paid on March 17, 1999.


                                      -23-

<PAGE>



The  operating  strategy  of the  Company's  management  emphasizes  several key
objectives:  expense  management;  marketing of  competitively  priced insurance
products  which are designed to generate an acceptable  level of  profitability;
maintenance of a high quality portfolio of investment grade securities;  and the
provision of quality customer service.

Revenues.

Premium  income,  net of reinsurance,  for the year 2000 was $10.87 million,  as
compared  to $11.13  million  for the year 1999 and $10.89  million for the year
1998. This source of revenues is related to the  traditional  life insurance and
accident & health insurance book of business of ILCO's  insurance  subsidiaries.
The  increase  in  premium  income  from 1998 to 1999 was due  primarily  to the
acquisition  of the book of business  from Grinnell  Life  Insurance  Company in
1998. The results for 1998 include,  for the period  beginning on June 30, 1998,
the  operations of Grinnell  Life.  Grinnell Life was acquired on June 30, 1998,
through a subsidiary of ILCO, for an adjusted purchase price of $16.6 million. A
portion of the purchase price ($12.37  million) was paid by way of a dividend to
the seller  immediately prior to the closing of the transaction;  the balance of
the purchase price was paid by ILCO's  subsidiary.  As part of the  transaction,
Grinnell Life was immediately  merged with and into that  subsidiary,  with that
subsidiary  being  the  surviving  entity.  The  decrease  from  1999 to 2000 is
attributable to the decrease in the traditional life insurance book of business.
Reinsurance  premiums  ceded were $3.04  million in 2000,  as  compared to $3.47
million in 1999 and $2.94 million in 1998. Premiums ceded decreased between 1999
and 2000 consistent with the decrease in premium income, and increased from 1998
to 1999 consistent with the increase in premium income.

Net investment income for the year ended December 31, 2000 was $50.89 million as
compared  to $49.91  million  for the year ended  December  31,  1999 and $54.62
million for the year ended December 31, 1998. The increase from 1999 to 2000 was
primarily  attributable  to the investment  income earned from the leases on the
buildings  at River Place  Pointe  during the second half of the year 2000.  The
decrease of $4.7 million from 1998 to 1999 was attributable to the allocation of
a portion of the  investment  portfolio  to the  development  of the River Place
Pointe project. The project did not produce rental income during the year 1999.

Income from earned  insurance  charges for the year ended  December 31, 2000 was
$38.50  million,  as  compared  to $40.45  million  for the year 1999 and $41.07
million for the year 1998.  This source of revenues is related to the  universal
life  insurance  and annuity book of business of  Investors-NA.  The decrease in
income from earned  insurance  charges over the three year period is  consistent
with  thedecrease in the universal  life insurance book of business,  as well as
the decreased income from surrender charges on universal life policies that have
been in force for a number of years.


                                      -24-


<PAGE>


Benefits and Expenses.

Policyholder  benefits and  expenses  for the year ended  December 31, 2000 were
$32.46  million,  as compared to $32.00  million for the year ended December 31,
1999 and $38.37  million for the year ended  December 31, 1998. The $6.4 million
decrease  from  1998 to 1999  was due to a lower  level of  death  claims  ($2.6
million  lower in 1999 than in 1998) and a $4.4  million  decrease  in  reserves
related to policyholder surrenders.

Interest  expense on contract  holders  deposit funds was $28.79 million for the
year ended  December 31, 2000, as compared to $30.23  million for the year ended
December 31, 1999 and $29.97 million for the year ended December 31, 1998.  This
expense reflects  increases or decreases in the universal life book of business.
The increase in 1999 from 1998 is due to the  acquisition  of the universal life
book of business from Grinnell Life. The decrease in 2000 is consistent with the
decrease in the total amount of universal life policies in force.

The expense  related to the  amortization  of present value of future profits of
acquired  businesses  was $3.81  million for the year ended  December  31, 2000,
$3.84  million for the year ended  December 31, 1999,  and $5.90 million for the
year ended December 31, 1998. The $2.1 million decrease in expenses from 1998 to
1999 is  attributable  to the final  amortization  in 1998 of a  portion  of the
business.  The small  decrease  from  1999 to 2000 is in line with the  expected
amortization of the remaining book of business.

The expense related to the amortization of deferred policy acquisition costs was
$2.51 million for the year ended  December 31, 2000,  $2.37 million for the year
ended December 31, 1999, and $2.13 million for the year ended December 31, 1998.
The slight increase in amortization  of deferred policy  acquisition  costs over
the three year  period can be  attributed  to the  continued  capitalization  of
expenses incurred in connection with the writing of new business.

The  operating  expenses of the Company  were $17.10  million for the year ended
December 31, 2000, as compared to $17.03 million for the year ended December 31,
1999 and $14.85  million  for the year ended  December  31,  1998.  The level of
expenses for the year 1999 was affected by expenses  incurred in connection with
the data processing Year 2000 compliance. The level of expenses in the year 2000
was affected by costs  associated  with the Company's move to River Place Pointe
and the increased amount of rent paid by the Company at its new offices.

The Company did not incur any interest expense in either the year ended December
31, 2000 or 1999.  For the year ended  December 31, 1998,  the Company  incurred
$659,000 in interest expense related to the final portion of outside debt, which
was completely paid off by the Company in 1998.


                                      -25-

<PAGE>

The provision for federal  income taxes was $7.02 million in 2000 as compared to
$5.97 million in 1999 and $6.47  million in 1998.  The decrease in the year 1999
was due to the tax deduction  attributable  to the donation of the Standard Life
Building.  Prior to  December,  1999,  Investors-NA  owned an  office  building,
located at 206 West Pearl  Street,  Jackson,  Mississippi,  which was the former
headquarters of Standard Life Insurance  Company the ("Standard Life Building").
On December 29, 1999,  Investors-NA  donated the Standard  Life  Building to the
Jackson Redevelopment Authority ("JRA").  Contemporaneously with the donation of
the Standard Life Building,  Investors-NA and Financial  Industries  Corporation
("FIC") sold all of the adjacent  parcels they owned to the JRA for a total sale
price of  $2,500,000.00,  which has been  allocated  according to the respective
ownership   interests   of   Investors-NA   (approximately   59.28%)   and   FIC
(approximately  40.72%). The donation and sale was made pursuant to the terms of
the  Donation,  Purchase and Sale  Agreement  dated July 17, 1998.  Investors-NA
claimed an income  tax  deduction  on tax  return  filed in 2000 in an amount of
$864,231.  The donation and sale transaction  referenced above resulted in a net
gain (GAAP basis) of $992,000 for ILCO and $409,000 for FIC (or a combined total
of $1.401 million).

During 2000, the lapse rate with respect to universal  life  insurance  policies
decreased from the lapse rate  experienced in 1999. The rate in 2000 was 5.84 %,
as  compared  to 6.30 % in 1999.  The lapse  rate with  respect  to  traditional
(non-universal)   life  insurance   policies  also  decreased  from  the  levels
experienced  in 1999.  The rate in 2000 was 6.45% compared to 8.15% in 1999. The
lapse  rates  experienced   during  the  2000  period  were  within  the  ranges
anticipated by management.

          Results of Operations - Three Months Ended December 31, 2000
             as compared to the Three Months Ended December 31, 1999

For the  three-month  period  ended  December  31,  2000,  ILCO's net income was
$2,474,000 (basic and diluted earnings of $0.30 per common share) on revenues of
$25,456,000 as compared to $4,042,000  (basic  earnings and diluted  earnings of
$0.46 per common share) on revenues of  $25,943,000  in the last three months of
1999.  The decrease in net income was primarily  attributable  to a $1.6 million
increase in death benefits in the fourth quarter of 2000 from the fourth quarter
of 1999. Additionally,  the Standard Life Building was donated during the fourth
quarter of 1999 and the corresponding tax deduction increased the net income for
that quarter.  Earnings per share are stated in accordance with the requirements
of Financial  Accounting  Standard (FAS) No. 128, which establishes two measures
of earnings per share:  basic earnings per share and diluted earnings per share.
Basic  earnings  per share is computed by dividing  income  available  to common
shareholders by the weighted average number of common shares  outstanding during
the period. Diluted earnings per share reflect the potential dilution that would
occur if securities or other  contracts to issue common stock were  converted or
exercised.

                                      -26-

<PAGE>

                         Liquidity and Capital Resources

Liquidity  describes the ability of a company to generate  sufficient cash flows
to  meet  the  cash  requirements  of  business  operations.  Historically,  our
principal  cash flow sources have been from  periodic  payment of principal  and
interest by Investors-NA,  pursuant to the terms of the Surplus  Debentures.  In
addition to the need for cash flow to meet  operating  expenses,  our  liquidity
requirements  relate principally to the liabilities  associated with our various
life insurance and annuity products. Our product liabilities include the payment
of benefits under life insurance and annuity products, as well as the payment of
policy surrenders, withdrawals and policy loans.

ILCO is an insurance  holding  company.  The principal assets of ILCO consist of
the outstanding capital stock of Investors-NA and its subsidiary,  Investors-IN.
Prior to June 30, 2000,  ILCO's principal  source of liquidity  consisted of the
periodic  payment of  principal  and interest by  Investors-NA,  pursuant to the
terms of the Surplus  Debentures.  The Surplus Debentures were originally issued
by Standard Life Insurance  Company and their terms were previously  approved by
the Mississippi  Insurance  Commissioner.  In connection with the 1993 merger of
Standard Life into Investors-NA,  the obligations of the Surplus Debentures were
assumed by Investors-NA.  As of June 30, 2000, the outstanding principal balance
of the Surplus  Debentures  was completely  paid off. For periods  subsequent to
June 30, 2000, ILCO's available source of liquidity is dividends paid to it from
its subsidiaries. Applicable state insurance laws generally restrict the ability
of insurance companies to pay cash dividends in excess of prescribed limitations
without prior approval. The ability of Investors-NA to pay shareholder dividends
is and will  continue to be subject to  restrictions  set forth in the insurance
laws and  regulations  of  Washington,  its  domiciliary  state.  The Washington
insurance law limits how and when Investors-NA can pay shareholder  dividends by
including  the "greater  of" standard for payment of dividends to  shareholders,
and requiring  that prior  notification  of a proposed  dividend be given to the
Washington Insurance  Commissioner and that cash dividends may be paid only from
earned surplus.  Under the "greater of" standard,  an insurer may pay a dividend
in an amount equal to the greater of (i) 10% of the policyholder surplus or (ii)
the insurer's net gain from operations for the previous year. As of December 31,
2000, Investors-NA had earned surplus of $69.1 million.

Investors-IN is domiciled in the State of Indiana.  Under the Indiana  insurance
code, a domestic insurer may make dividend  distributions  upon proper notice to
the  Department  of  Insurance,  as long as the  distribution  is  reasonable in
relation to adequate  levels of  policyholder  surplus and quality of  earnings.
Under Indiana law the dividend must be paid from earned  surplus.  Extraordinary
dividend  approval would be required where a dividend exceeds the greater of 10%
of  surplus  or the  net  gain  from  operations  for  the  prior  fiscal  year.
Investors-IN had earned surplus of $23.8 million at December 31, 2000.

ILCO's  cash and cash  equivalents  at December  31,  2000 was $9.07  million as
compared to $3.36  million at December  31, 1999 and $12.21  million at December
31, 1998. The $5.7 million increase in cash and cash equivalents at December 31,
2000 from 1999 was due  primarily to a large  decrease in cash used in operating
activities.  The  decrease  in cash and cash  equivalents  from 1998 to 1999 was
primarily  attributable  to a  decrease  of  cash  flow  provided  by  investing
activities  due to an increase in  investments  purchased  and a decrease in the
value of  short-term  investments  attributable  to interest  rate  fluctuations
during 1999.
                                      -27-

<PAGE>



ILCO's net cash flow used in operating  activities  was $(1.91)  million for the
year ended December 31, 2000, as compared to $(20.89) million for the year ended
December 31, 1999 and $(17.33) million for the year ended December 31, 1998. The
$19.0 million increase in cash flow from 1999 to 2000 was primarily attributable
to a $4.6  million  decrease in agent  advances  and other  receivables,  a $5.8
million decrease in policy liabilities and  contractholder  deposit funds due to
fewer  surrenders of policies,  and a $13.9 million increase in deferred federal
income taxes due primarily to the gain on the Company's bond portfolio.

The net cash used in financing activities was $(6.66) million for the year ended
December 31, 2000,  as compared to $(.026)  million for the year ended  December
31, 1999 and $(10.78)  million for the year ended  December  31, 1998.  The cash
used in financing  activities for the year 2000 was attributable to ILCO's stock
repurchase  plan.  In 1999,  the  Board of  Directors  of ILCO  adopted  a stock
repurchase  plan,  under which ILCO is  authorized to repurchase up to 5% of its
outstanding common stock at times deemed appropriate by management.  On June 29,
1999, the Company issued a press release describing the plan, and a Form 8-K was
been filed with the SEC on June 30, 1999. The plan was  subsequently  amended to
allow  ILCO  to  repurchase  up to 10%  of  its  outstanding  common  stock.  In
authorizing the repurchases,  the Board of Directors intended that the plan will
enhance the value of ILCO's common stock and to manage its capital. Cash used in
financing  activities for the year 1998 was attributable to the final payment on
the Senior Loan.

Management  believes that its cash, cash  equivalents and short term investments
are sufficient to meet the needs of its business.

Investments.

As of December  31,  2000,  the book value of the  Company's  investment  assets
totaled  $660.0  million,  as compared to $678.8 as of December 31, 1999.  Total
assets as of December 31, 2000, which were $1.31 billion decreased slightly from
the level as of December  31,  1999,  which was $1.32  billion.  The decrease in
investment  assets  was  primarily  attributable  to a  decrease  in  short-term
investments.  The level of short- term investments at the end of 2000 was $129.8
million,  as compared to $191.7  million at the end of 1999.  This  decrease was
primarily  attributable to a reallocation of investments from short-term,  fixed
income bonds to long-term  bonds and the  Company's  real estate  investment  in
River Place Pointe.

The fixed  maturities  available for sale portion of invested assets at December
31,  2000 was  $440.75  million.  The  amortized  cost of the  fixed  maturities
available   for  sale  segment  as  of  December  31,  2000  was  $437  million,
representing  a net  unrealized  gain of $3.75  million.  This  unrealized  gain
principally  reflects  changes in  interest  rates from the date the  respective
investments were purchased. At December 31, 1999,

                                      -28-


<PAGE>

the fixed  maturities  available for sale portion of invested  assets was $404.2
million and the amortized cost was $411.5 million, representing a net unrealized
loss of $7.3 million. The overall increase from 1999 to 2000 was attributable to
additional  purchases  of fixed  maturities  available  for sale as well as more
favorable  interest rates for these  investments in 2000. To reduce the exposure
to interest rate changes,  portfolio investments are selected so that diversity,
maturity  and  liquidity   factors   approximate   the  duration  of  associated
policyholder liabilities.

Invested real estate and other invested  assets  increased from $21.1 million at
December 31, 1999 to $33.0  million as of December 31,  2000.  This  increase is
related  primarily to the ongoing  development  by  Investors-NA  of River Place
Pointe.

The liquidity of our insurance operations is also related to the overall quality
of our investments.  The assets held by ILCO's life insurance  subsidiaries must
comply with  applicable  state  insurance  laws and  regulations.  In  selecting
investments for the portfolios of its life insurance subsidiaries, the Company's
emphasis is to obtain targeted profit margins,  while minimizing the exposure to
changing  interest rates.  This objective is implemented by selecting  primarily
short- to medium-term,  investment grade fixed income securities. In making such
portfolio  selections,  the Company  generally  does not select new  investments
which are commonly referred to as "high yield" or "non-investment grade."

The Company's fixed maturities portfolio (including short-term investments),  as
of  December  31,  2000,  included a  non-material  amount (0.7 % of total fixed
maturities and short-term  investments) of debt securities  which, in the annual
statements  of the  companies as filed with state  insurance  departments,  were
designated under the National  Association of Insurance  Commissioners  ("NAIC")
rating system as "3" (medium  quality) or below. For the year ended December 31,
1999, the comparable percentage was 0.1%. The increase from 0.1% in 1999 to 0.7%
in 2000 was  attributable  to  mortgage  bonds  which  the  Company's  insurance
subsidiaries own in California utilities,  which were downgraded to a "5" (lower
quality) rating by the NAIC as of December,  2000. Inv-NA owns mortgage bonds in
Pacific Gas & Electric  which were purchased for $1.031 million and had a market
value as of December 31, 2000 of $720,000, and owns bonds in Southern California
Edison  which were  purchased  for $1.96  million  and had a market  value as of
December  31,  2000 of  $1.48  million.  Inv-IN  also  owns  bonds  in  Southern
California Edison which were purchased for $488,085 and had a market value as of
December 31, 2000 of $370,000.

The  consolidated  balance sheets of the Company as of December 31, 2000 include
$35.3 million of "Notes receivable from  affiliates",  represented by (i) a loan
of $22.5 million from Investors-NA to Family Life Corporation and a $2.5 million
loan from Investors-CA to Financial  Industries  Corporation (which is now owned
by Investors-NA as a result of the merger of Investors-CA into Investors-NA) and
$2.0 million of additions to the $2.5 million note made in  accordance  with the
terms of such  note;  these  loans  were  granted  in  connection  with the 1991
acquisition  of Family Life Insurance  Company by a wholly- owned  subsidiary of
FIC (ii) a loan of $30 million by Investors-NA to Family Life  Corporation  made
in July,  1993, in connection  with the  prepayment by the FIC  subsidiaries  of
indebtedness  which had been  previously  issued to Merrill Lynch as part of the
1991 acquisition and (iii) a loan of $4.5 million by Investors-NA to Family Life
Insurance  Investment  Company made in July,  1993, in connection  with the same
transaction described above.

                                      -29-


<PAGE>



As of June 12, 1996, the provisions of the notes from  Investors-NA  to FIC, FLC
and FLIIC were  modified as follows:  (a) the $22.5  million note was amended to
provide for twenty  quarterly  principal  payments,  in the amount of $1,125,000
each, to commence on December 12, 1996; the final quarterly principal payment is
due on September 12, 2001; the interest rate on the note remains at 11%, (b) the
$30 million note was amended to provide for forty quarterly  principal payments,
in the amount of $163,540 each for the period December 12, 1996 to September 12,
2001;  beginning with the principal payment due on December 12, 2001, the amount
of the principal payment increases to $1,336,458;  the final quarterly principal
payment is due on September  12, 2006;  the interest rate on the note remains at
9%,  (c) the $4.5  million  note was  amended  to  provide  for forty  quarterly
principal  payments,  in the amount of $24,531 each for the period  December 12,
1996 to September 12, 2001; beginning with the principal payment due on December
12, 2001, the amount of the principal payment  increases to $200,469;  the final
quarterly  principal  payment is due on September 12, 2006; the interest rate on
the note  remains at 9%, (d) the $2.5  million  note was amended to provide that
the  principal  balance  of  the  note  is  to be  repaid  in  twenty  quarterly
installments  of  $125,000  each,  commencing  December  12, 1996 with the final
payment due on September 12, 2001;  the rate of interest  remains at 12% and (e)
the Master PIK note,  which was  issued to  provide  for the  payment in kind of
interest  due under the terms of the $2.5  million  note prior to June 12, 1996,
was amended to provide that the principal  balance of the note, in the amount of
$1,977,119,  is to be paid in twenty quarterly principal payments, in the amount
of $98,855.95 each, to commence  December 12, 1996 with the final payment due on
September 12, 2001; the interest rate on the note remains at 12%.

In December, 1998, FLIIC was dissolved. In connection with the dissolution,  all
of the assets and  liabilities  of FLIIC became the  obligations of FLIIC's sole
shareholder (FIC). Accordingly, the obligations under the provisions of the $4.5
million note described above are now the obligations of FIC.

The NAIC continued its rating of "3" to the "Notes  receivable from affiliates",
as amended.  These loans have not been included in the preceding  description of
NAIC rating percentages.

Management  believes that the absence of any material amounts of "high-yield" or
"non-investment  grade"  investments (as defined above) in the portfolios of its
life insurance  subsidiaries  enhances the ability of the Company to service its
debt, provide security to its policyholders and to credit relatively  consistent
rates of return to its policyholders.

                          New Accounting Pronouncements

In  June  1998,  the  FASB  issued  FAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities",  which establishes accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts,  (collectively  referred to as derivatives) and for
hedging  activities.  FAS No. 133, as amended by FAS No.  138,  "Accounting  for
Certain Derivative  Instruments and Certain Hedging Activities - An Amendment of
FASB  Statement No. 133," is applicable to financial  statements  for all fiscal
quarters of fiscal years  beginning  after June 15, 2000,  as amended by FAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the  Effective  Date of FASB  Statement  No.133." As the  Company  does not have
significant investments in derivative financial instruments, the adoption of FAS
No. 133 is not anticipated to have a material impact on the Company's results of
operations, liquidity or financial position.

                                      -30-


<PAGE>



                                Subsequent Events

Agreement and Plan of Merger.

On January 17, 2001,  ILCO  entered  into an  Agreement  and Plan of Merger (the
"Agreement") with FIC and ILCO Acquisition Company ("ILCO Acquisition"), a Texas
corporation  and  wholly-owned  subsidiary  of FIC.  In general,  the  Agreement
provides that,  following the approval of the Agreement by the  shareholders  of
ILCO and the  approval  of the  issuance  of  shares  of FIC  common  stock  and
amendment to FIC's articles of  incorporation by the shareholders of FIC and the
satisfaction  or  waiver  of the  other  conditions  to  the  merger:  (1)  ILCO
Acquisition  will merge with and into ILCO; and (2) ILCO  Acquisition will cease
to  exist  and  ILCO  will  continue  as  the  surviving  corporation  and  as a
wholly-owned subsidiary of FIC following the merger.

Upon the consummation of the merger:  (1) each share of ILCO common stock issued
and  outstanding  immediately  prior to the  merger,  other than  shares of ILCO
common  stock  held as  treasury  shares by ILCO (but  excluding  shares of ILCO
common  stock  held by any of ILCO's  subsidiaries,  whether  or not  treated as
treasury  shares  of ILCO  on a  consolidated  basis  under  generally  accepted
accounting  principles)  or shares of ILCO  common  stock  held by FIC,  will be
converted into the right to receive 1.1 shares of FIC common stock.  However, in
the event of any change in FIC common  stock  and/or ILCO common  stock prior to
the   merger,   such   as  a   stock   split,   stock   dividend,   subdivision,
reclassification, recapitalization, combination, exchange of shares or the like,
the number and class of shares of FIC common stock to be issued and delivered in
the merger in exchange for each  outstanding  share of ILCO common stock will be
adjusted so as to maintain the relative  proportionate  interests of the holders
of ILCO common stock and FIC common stock;  (2) each share of ILCO common stock,
series A  preferred  stock and series B  preferred  stock of ILCO,  in each case
which is held as treasury shares by ILCO prior to the merger  (excluding  shares
of ILCO common stock held by any of ILCO's subsidiaries,  whether or not treated
as treasury  shares of ILCO on a  consolidated  basis under  generally  accepted
accounting principles), and each share of ILCO common stock which is held by FIC
(excluding  any shares of ILCO common stock owned by any of FIC's  subsidiaries)
prior to the merger,  will be cancelled  and  retired;  (3) each share of common
stock of ILCO Acquisition issued and outstanding immediately prior to the merger
will be  converted  into one share of common  stock of ILCO and such shares will
represent all of the issued and outstanding  capital stock of ILCO following the
merger; and (4) shares of FIC common stock outstanding  immediately prior to the
merger  (including  shares of FIC common stock held by any  subsidiary of FIC or
ILCO)  will  remain  outstanding  and  will  be  unaffected  by the  merger.  No
fractional  shares of FIC common stock will be issued in the merger. A holder of
ILCO common stock who would otherwise be entitled to receive fractional shares
                                      -31-


<PAGE>
of FIC  common  stock  as a  result  of the  merger  will  receive,  in  lieu of
fractional  shares,  cash in an amount  equal to the average  closing  price per
share of FIC  common  stock for the 30  trading  days  immediately  prior to the
merger  multiplied  by the  fraction  to which the  holder  would  otherwise  be
entitled.  FIC will make  available to First Union  National  Bank,  as exchange
agent,  from  time to time  sufficient  cash  amounts  to  satisfy  payment  for
fractional  shares  and First  Union  will  distribute  such  proceeds,  without
interest, to the holders of the fractional interests.

The consummation of the merger remains subject to regulatory  approval,  as well
as to the various conditions precedent set forth in the Agreement, including the
approval  of certain  matters by the  shareholders  of FIC and ILCO.  For a more
detailed  description of the Agreement,  see the complete copy of the Agreement,
attached as an annex to the S-4 filed by FIC with the  Securities  and  Exchange
Commission on February 1, 2001, as amended by the S-4/A filed on March 13, 2001.

Unsolicited Verbal Inquiries Concerning Possible Purchase of Post-Merger Company

On  March  8,  2001,  FIC  announced  that it has  received  unsolicited  verbal
indications of interest from a few companies that may be interested in acquiring
FIC after  completion  of the merger with ILCO.  The press release did not state
any price ranges or other material terms. In conjunction  with such  indications
of interest,  FIC has retained Philo Smith Capital  Corporation as its financial
advisor to  explore  the  possibility  of a  post-merger  sale of FIC with these
companies and to further  solicit  indications of interest from other  companies
that may have similar  interests.  No formal  indications  of interest have been
received  by FIC to date  and FIC has not  determined  to sell  the  post-merger
company.

Litigation Relating to the Merger

On the day that ILCO publicly  announced the formation of a special committee to
evaluate a  potential  merger with FIC,  two class  action  lawsuits  were filed
against  ILCO,  FIC and the officers and directors of ILCO.  The actions  allege
that a cash  consideration  in the proposed merger is unfair to the shareholders
of ILCO,  that it would prevent the ILCO  shareholders  from  realizing the true
value of ILCO,  and that FIC and the named  officers and  directors had material
conflicts of interest in approving the transaction.

In their initial pleadings,  the plaintiffs sought certification of the cases as
class actions and the named plaintiffs as class representatives, and among other
relief, requested that the merger be enjoined (or, if consummated, rescinded and
set  aside)  and that the  defendants  account  to the class  members  for their
damages.

As of March 16,  2001,  the  plaintiffs  have not taken any further  action with
respect to the litigation.  The defendants believe that the lawsuits are without
merit and intend to  vigorously  contest the  lawsuits.  Management is unable to
determine  the impact,  if any,  that the  lawsuits  will have on the results of
operations of ILCO.


                                      -32-


<PAGE>

Dividend

In March,  2001, ILCO announced that its board of directors approved the payment
of an annual  cash  dividend in the amount of $0.41 per share.  The  dividend is
payable on April 12,  2001,  to record  holders as of the close of  business  on
March 19, 2001.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

General. ILCO's principal assets are financial instruments, which are subject to
market  risks.  Market risk is the risk of loss arising from adverse  changes in
market rates and prices,  principally  interest rates on fixed rate investments.
For a discussion of the  Company's  investment  portfolio and the  management of
that portfolio to reflect the nature of the underlying insurance  obligations of
the  Company's  insurance  subsidiaries,  please  refer to the section  entitled
"Investment of Assets" in Item 1 of this report and the information set forth in
Item 7,  "Management's  Discussion  and  Analysis  of  Financial  Condition  and
Operations - Liquidity and Capital Resources - Investments."

The  following is a discussion of the Company's  primary  market risk  sensitive
instruments.  It should be noted that this  discussion has been developed  using
estimates  and  assumptions.  Actual  results may differ  materially  from those
described below.  Further,  the following  discussion does not take into account
actions which could be taken by management in response to the assumed changes in
market rates. In addition, the discussion does not take into account other types
of risks which may be involved in the business  operations of the Company,  such
as the reinsurance recoveries on reinsurance treaties with third party insurers.

The primary market risk to the Company's  investment  portfolio is interest rate
risk. Interest rate risk is the risk that the Company will incur economic losses
due to adverse changes in interest rates.

Interest Rate Risk.  The Company  manages the interest rate risk inherent in our
assets  relative  to  the  interest  rate  risk  inherent  in  our  liabilities.
Generally,  we manage  interest rate risk based on the application of a commonly
used model. The model projects the impact of interest rate changes on a range of
factors,  including duration and potential prepayment.  For example, assuming an
immediate  increase of 100 basis points in interest rates,  the net hypothetical
loss in fair market value  related to the financial  instruments  segment of the
Company's  balance  sheet is estimated to be $21.1  million at December 31, 2000
and $23.3 million at December 31, 1999. For purposes of the foregoing  estimate,
the following  categories of the Company's fixed income  investments  were taken
into account:  (i) fixed  maturities,  including fixed maturities  available for
sale, (ii) short-term  investments and (iii) notes  receivable from  affiliates.
The market  value of such  assets was $607.3  million at  December  31, 2000 and
$639.5 million at December 31, 1999.

The fixed income  investments  of the Company  include  certain  mortgage-backed
securities.  The market value of such  securities was $223.6 million at December
31, 2000 and $208 million at December 31, 1999.  Assuming an immediate  increase
of 100 basis points in interest  rates,  the net  hypothetical  loss in the fair
market value related to such mortgage-backed securities is estimated to be $11.1
million at December 31, 2000 and $12.0 million at December 31, 1999.

                                      -33-

<PAGE>



Separate account assets have not been included,  since gains and losses on those
assets generally accrue to the policyholders.

The Company does not use derivative financial instruments to manage our exposure
to fluctuations in interest rates.


Item 8. Financial Statements and Supplementary Data

The following  Financial  Statements of ILCO and its  consolidated  subsidiaries
have been filed as part of this report:

1. Report of  PricewaterhouseCoopers  LLP, Independent Accountants,  dated April
   2, 2001.

2. Consolidated Balance Sheets, as of December 31, 2000 and December 31, 1999.

3. Consolidated Statements of Income for the years ended December 31, 2000, 1999
   and 1998.

4.  Consolidated  Statements  of Changes in  Shareholders'  Equity for the years
    ended December 31, 2000, 1999 and 1998.

5. Consolidated  Statements of Cash Flows for the years ended December 31, 2000,
   1999 and 1998.

6. Notes to Consolidated Financial Statements.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

No independent  accountant who audited the Registrant's financial statements has
resigned or been dismissed during the two most recent fiscal years.


                                      -34-

<PAGE>

                                    PART III


Item 10.  Directors and Executive Officers of Registrant

(a) Identification of Directors

Set  forth  below  are the  names  and  ages  of the  current  directors  of the
Registrant,  the  positions  and offices with the  Registrant  held by each such
person,  the  period  which each such  person  has  served as a director  of the
Registrant,  and other data regarding each director.  All of the directors other
than M. Scott Mitte, were elected at the 2000 annual shareholders meeting. Scott
Mitte was appointed as a director in October, 2000, to fill a vacancy created by
the resignation of Charles K. Chacosky in October, 2000. The data supplied below
is based on  information  provided by the  directors,  except to the extent that
such data is known to the Registrant.


                            Director
Name              Age       Since   Principal Occupation and Other Information

Robert A. Bender   47       1997   Director of ILCO since October, 1997.  Vice
                                   President Family Life Insurance Company
                                   since January, 1997. Vice President of
                                   Investors Life Insurance Company of North
                                   America since January, 1997.  Vice President
                                   of Investors-IN since January, 1997.
                                   Assistant Vice President of Investors Life
                                   Insurance Company of North America from
                                   February, 1994 to January, 1997. Assistant
                                   Vice President of Investors-Indiana from
                                   February, 1994 to January, 1997.  Assistant
                                   Vice President of Investors-IN from February,
                                   1994 to January, 1997.  Assistant Vice
                                   President of Family Life Insurance Company
                                   from February, 1994 to January, 1997.


                                      -35-

<PAGE>


Jeffrey H. Demgen   48      1995   Director of FIC since May, 1995.  Vice
                                   President of FIC since August, 1996.
                                   Director and Vice President of ILCO since
                                   August, 1996.  Executive Vice President and
                                   Director of Family Life Insurance Company
                                   since August, 1996.  Senior Vice President
                                   and Director of Family Life Insurance Company
                                   from October, 1992 to August, 1996.
                                   Executive Vice President and Director of
                                   Investors-NA and Investors-IN since August,
                                   1996. Senior Vice President and Director of
                                   Investors Life Insurance Company of North
                                   America from October, 1992 to June, 1995.
                                   Senior Vice President of Investors-IN,
                                   formerly known as InterContinental Life
                                   Insurance Company from October, 1992 to June,
                                   1995.  Executive Vice President and Director
                                   of Investors-Indiana from August, 1996 to
                                   December, 1997.


Theodore A. Fleron  61      1991   Vice President and Director of ILCO since
                                   May, 1991. Assistant Secretary of ILCO since
                                   June, 1990.  Vice President and Director of
                                   FIC since August, 1996. Senior Vice
                                   President, General Counsel, Assistant
                                   Secretary and Director of Investors-NA and
                                   Investors-IN since July, 1992.  General
                                   Counsel, Assistant Secretary and Director of
                                   Investors-NA and Investors-IN from January,
                                   1989 to July, 1992.  Senior Vice President,
                                   General Counsel, Director and Assistant
                                   Secretary of Investors-Indiana from June,
                                   1995 to December, 1997. Senior Vice
                                   President, General Counsel, Director and
                                   Assistant Secretary of Family Life Insurance
                                   Company since August, 1996.

W. Lewis Gilcrease  69      1988   Director of ILCO since 1988.  Director of FIC
                                   from 1979 to July, 1991.  Dentist practicing
                                   in San Marcos, Texas.


                                      -36-

<PAGE>


James M. Grace      57      1984   Vice President and Treasurer of ILCO since
                                   January, 1985.  Executive Vice President,
                                   Treasurer and Director of Investors-IN since
                                   1989.  Vice President, Treasurer and Director
                                   of FIC since July, 1976.  Executive Vice
                                   President and Treasurer of Investors-NA since
                                   1989. Executive Vice President, Treasurer and
                                   Director of Family Life Insurance Company
                                   since June, 1991.  Director, Executive Vice
                                   President and Treasurer of Investors-Indiana
                                   from February, 1995 to December, 1997.

Richard A. Kosson   69      1981   Director of ILCO since 1981. Certified Public
                                   Accountant and a partner in the firm of
                                   Manheim, Kosson & Novick in Millburn,
                                   New Jersey.

M. Scott Mitte      44      2000   Director of FIC since October, 2000. Director
                                   of ILCO since October, 2000.  Executive
                                   Director and Vice-President of the Roy F.
                                   and Joann Cole Mitte Foundation since 1999.

Roy F. Mitte        69      1984   Chairman of the Board and Chief Executive
                                   Officer of ILCO and Investors-IN since
                                   January, 1985. President of ILCO since April,
                                   1985.  Chairman of the Board, President and
                                   Chief Executive Officer of FIC since 1976.
                                   Chairman of the Board, President and Chief
                                   Executive Officer of Investors -NA since
                                   December, 1988. Chairman of the Board,
                                   President and Chief Executive Officer of
                                   Family Life Insurance Company since June,
                                   1991.  Chairman of the Board, President and
                                   Chief Executive Officer of Investors-Indiana
                                   from  February 1995 to December, 1997.
                                   Chairman, ILG Securities Corporation since
                                   December, 1988.

Elizabeth T. Nash   51      1998   Director of ILCO since 1998.   Member of the
                                   Board of Regents, Texas State University
                                   System from 1993 through 1999, Chairman from
                                   1997 to 1998, Vice-Chairman from 1996 to
                                   1997.  Board member of the Development
                                   Foundation of Southwest Texas State
                                   University since 1987, Chairman from 1992
                                   to 1997, Vice-Chairman from 1989 to 1992.


                                      -37-

<PAGE>


Eugene E. Payne     58      1989   Director of ILCO since December, 1988.
                                   Chairman of the Department of Management at
                                   Southwest Texas State University in San
                                   Marcos, Texas, from 2000 to present. Vice
                                   President of ILCO from December, 1988 through
                                   July, 2000 and Secretary from May, 1989
                                   through July, 2000.  Vice President and
                                   Director of FIC from February, 1992 through
                                   July, 2000.  Executive Vice President,
                                   Secretary and Director of Investors Life
                                   Insurance Company of North America since
                                   December, 1988.  Executive Vice President
                                   since December 1988 and Director since May,
                                   1989 of Investors- IN, formerly known as
                                   InterContinental Life Insurance Company.
                                   Executive Vice President, Secretary and
                                   Director of  Family Life Insurance Company
                                   since June, 1991.  Director, Executive Vice
                                   President and Secretary of Investors-Indiana
                                   from February, 1995 to December, 1997.

Steven P. Schmitt   54      1994   Director of ILCO since 1994.  Director of FIC
                                   since October, 2000.  Vice President of ILCO
                                   and FIC since October, 2000.  Executive Vice
                                   President of Family Life Insurance Company
                                   since October, 2000. Executive Vice President
                                   of Investors-NA and Investors-IN since
                                   October, 2000. Senior Vice President of
                                   Investors-NA and Investors-IN from April,
                                   1992 through October, 2000 and Director and
                                   Assistant Secretary of Investors-NA and
                                   Investors-IN since August, 1989.  Senior Vice
                                   President of Family Life Insurance Company
                                   from April, 1992 through October, 2000 and
                                   Director of FLIC since June, 1991.


(b) Identification of Executive Officers

The following table sets forth the names and ages of the persons who have served
as Registrant's  Executive  Officers during 2000 together with all positions and
offices held by them with the  Registrant.  Officers are elected to serve at the
will of the Board of Directors or until their  successors  have been elected and
qualified.

                                      -38-

<PAGE>


Name                       Age              Positions and Offices

Roy F. Mitte               69               Chairman of the Board, President
                                            and Chief Executive Officer

James M. Grace             57               Vice President and Treasurer

Steven P. Schmitt          54               Vice President and Secretary

Jeffrey H. Demgen          48               Vice President

In May 1991,  Roy F. Mitte  suffered a stroke,  resulting  in partial  paralysis
affecting  his speech and  mobility.  Mr. Mitte  continues to make the requisite
decisions in his capacity as Chief  Executive  Officer,  although his ability to
communicate and his mobility are impaired.

Steven P. Schmitt was appointed  Vice  President and Secretary of the Company in
October, 2000, upon the resignation of Charles K. Chacosky.

(c) Identification of certain significant employees

    Not Applicable.

(d) Family relationships

    M. Scott Mitte is the son of Roy F. Mitte.

(e) Business experience

All of the  executive  officers  of the  Company  are  members  of the  Board of
Directors and the business experience of each director has been outlined in Item
10(a).

(f) Involvement in certain legal proceedings

    Not Applicable

(g) Beneficial Ownership Reporting Compliance

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
officers  and  directors,  and  persons  who own  more  than  ten  percent  of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
beneficial  ownership on Form 3 and changes in  beneficial  ownership on Forms 4
and 5 with the  Securities  and Exchange  Commission.  Officers,  directors  and
greater than ten-percent  shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.


                                      -39-
<PAGE>


Based solely on review of the copies of such forms furnished to the Company,  or
written representations that no Form 5s were required, the Company believes that
during the period from  January 1, 2000 through  December 31, 2000,  all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were complied with, other than with respect to (i)
Mr.  Michael  Scott Mitte,  who filed a Form 5 in February,  2001, to report his
election as a director on October 13, 2000;  (ii) Jefrey H. Demgen,  who filed a
Form 5 in February, 2001, to report his voluntary disposition in April, 2000, of
318 shares held in his account  under the ILCO ESOP Plan;  (iii) James M. Grace,
who filed a Form 5 in February,  2001, to report his voluntary  disposition,  in
April,  2000, of 1,302 shares held in his account under the ILCO ESOP Plan; (iv)
Eugene E. Payne,  who filed a Form 5 in February,  2001, to report his voluntary
disposition in January, 2000, of 1,053 shares held in his account under the ILCO
ESOP Plan,  his exercise in October,  2000 of options to acquire 2,000 shares of
the common  stock of the  Company  pursuant to the  provisions  of the ILCO 1999
Stock  Option Plan and the  subsequent  sale in  October,  2000 of the shares so
acquired  upon exercise of the options;  and (v) Steven P. Schmitt,  who filed a
Form 5 in February,  2001, to report his voluntary  disposition in January, 2000
of 649 shares  held in his  account  under the ILCO ESOP Plan and his  voluntary
disposition,  in April,  2000,  of 616 shares held in his account under the ILCO
ESOP Plan.

Item 11. Executive Compensation

Composition of Board

The business of ILCO is managed  under the  direction of its board of directors.
The  board  of  directors  currently  consists  of 11  directors,  3 of whom are
independent directors.

Compensation Committee

The  compensation  committee  of ILCO is chosen by the board of  directors.  The
compensation  committee  makes  recommendations  to the Board of Directors  with
respect  to  the  Chief  Executive  Officer's  compensation.   The  compensation
committee met once to determine Mr. Mitte's  compensation for the year 2000. The
members  of the  committee  are:  W.  Lewis  Gilcrease,  Richard  A.  Kosson and
Elizabeth T. Nash.

Compensation Committee Interlocks and Insider Participation

Roy F. Mitte  determines  the  compensation  of all  executive  officers  of the
Company,  other than the Chief Executive  Officer.  Mr. Mitte is the Chairman of
the Board, President and Chief Executive Officer of the Company and FIC. He also
determines  the  compensation  of all executive  officers of FIC, other than the
Chief Executive Officer.


                                      -40-

<PAGE>

Summary Compensation Table

The following table sets forth  information  concerning the  compensation of the
Company's Chief  Executive  Officer and each of the three other persons who were
serving as  executive  officers of the  Company at the end of 2000 for  services
rendered during the fiscal years ended December 31, 2000, 1999 and 1998.
<TABLE>




                         Annual Compensation                                             Long Term Compensation

<S>                      <C>         <C>       <C>              <C>                <C>                     <C>

Name and                                                      Other Annual       Stock Options            All Other
Principal Position    Year       Salary(1)       Bonus         Compensation        (Shares)(4)            Long Term
                                                                (2, 3)                                   Compensation (5)
Roy F. Mitte,
Chairman,
President and         2000      $356,679      $ 1,535,000             $0-                -0-             $       -0-
Chief Executive       1999       356,679        1,535,000             -0-            10,000                      -0-
Officer               1998       356,679        1,535,000             -0-                -0-                     -0-

James M. Grace,       2000       195,000           25,000             -0-                -0-                  6,337
Vice President        1999       195,000           20,000        191,215             10,000                   1,600
and Treasurer         1998       195,000           25,000        227,040                 -0-                  1,350

Steven P.Schmitt,     2000(6)    108,846           16,000             -0-                -0-                  2,004
Vice President
and Secretary

Jeffrey Demgen,       2000       160,000           20,000             -0-                 0-                  2,021
Vice President        1999       150,000           20,000             -0-            10,000                   1,600
                      1998       145,384           15,000             -0-                -0-                  1,615
</TABLE>


(1) The executive  officers of the Company have also been executive  officers of
the Company's  insurance  subsidiaries  and FIC and FIC's insurance  subsidiary,
Family Life.  FIC and/or Family Life  reimbursed the Company (or, in the case of
Mr.  Mitte,  authorized  payment  of) the  following  amounts as FIC's or Family
Life's share of these executive  officers' cash compensation and bonus for 1998,
1999  and  2000:   (i)  Mr.  Mitte:   $1,111,821,   $1,111,821   and  $1,111,821
respectively, which amounts are not included in the above table; (ii) Mr. Grace:
$64,152, $62,694, and $64,152,  respectively,  which amounts are included in the
above table; (iii) Mr. Demgen: $72,173, $76,500, and $81,000 respectively, which
amounts  are  included  in the above  table;  and (iv) for the year  2000  only,
$38,888 for Mr. Schmitt, which amount is included in the above table.

(2) Does not  include  the  value of  perquisites  and other  personal  benefits
because the aggregate amount of any such compensation does not exceed the lesser
of $50,000 or 10 percent of the total amount of annual  salary and bonus for any
named individual.

                                      -41-

<PAGE>

(3) Includes the value realized by Mr. Grace in connection  with the exercise of
stock options. In 1999, Mr. Grace exercised options to purchase 24,000 shares of
the Company's common stock under the Non-Qualified  Option Plan. See "Aggregated
Option Exercises in 1999 and 2000" below.

(4) The data in this  column  represents  the  number  of shares  available  for
exercise under options granted in 1999 under the 1999 ILCO  Non-Qualified  Stock
Option Plan. See also, "Option Grants in 1999", below.

(5) All Other Compensation includes:

     (i)  Company   contributions  to  the  InterContinental   Life  Corporation
     Employees Savings and Investment Plan. The amount of each such contribution
     for the years 1998, 1999, and 2000  respectively,  was as follows:  (a) Mr.
     Grace:$1,350,  $1,600, and $2,021 respectively,  (b) Mr.  Demgen:$1,615,  $
     1,600, and $2,021 respectively, and (c) for Mr. Schmitt: $2,004 in the year
     2000 only.

     (ii) amounts paid by the Company to Mr.  Grace to  supplement  his benefits
     under the Company's  Pension Plan. The Pension Plan  supplement  relates to
     each of the past  service  years for Mr.  Grace which were  affected by the
     limitation on compensation which the Pension Plan may take into account for
     benefit  accrual  purposes.  Under  federal  pension  rules,  an employee's
     benefit under a qualified  pension plan,  such as the ILCO Pension Plan, is
     limited to certain maximum amounts.  The amount of the payment made in 1998
     was  determined  by comparing  the accrued  benefit for Mr. Grace under the
     ILCO Pension Plan through December 31, 1997 to the accrued benefit which he
     would have had under the Plan's benefit formula without  application of the
     limitations  applicable to tax qualified retirement plans. The value of the
     difference,  representing  an amount payable for life  commencing at normal
     retirement  age, was then  commuted to its present  value,  which amount is
     included in this column.  Mr.  Grace  elected to defer his amounts into the
     Company's  Non-Qualified Deferred Compensation Plan. In 1999, the actuarial
     consulting  firm which  provides the Company with the  calculations  of the
     amounts of the supplements advised the Company that certain errors had been
     made with respect to prior  years.  As a result,  the Company  adjusted the
     amount of the supplement for Mr. Grace. The adjustment resulted in a credit
     to the Company in the amount of $6,574.  This amount was deducted  from the
     Non-Qualified  Deferred Compensation Plan maintained by the Company for Mr.
     Grace.  For the year 2000, the Company  contribution  to the  Non-Qualified
     Deferred  Compensation  Plan for Mr. Grace to supplement his benefits under
     the  Company's  Pension  Plan was  $4,316.  The  Company  intends to make a
     similar  payment with respect to benefit  accruals  for  subsequent  years;
     however,  there is no obligation for it to do so.

(6) Steven P. Schmitt was  appointed  as an executive  officer in the year 2000,
thus only his compensation for the year 2000 is disclosed.

Option Grants in 1999

The  following  table sets forth  certain  information  regarding  stock options
granted  during  calendar  year  1999  to  the  persons  named  in  the  Summary
Compensation Table,  above. The options were granted under the  InterContinental
Life  Corporation  1999 Stock Option  Plan.  The plan was approved at the Annual
Meeting of
                                      -42-


<PAGE>

Stockholders  held on May 18,  1999.  During  1999,  options to purchase  10,000
shares of the common  stock of the Company  were granted to each of 46 employees
of the Company, its subsidiaries and affiliates, for a total of 460,000 options.
As of  December  31,  2000,  options to  purchase  a total of 88,000  shares had
terminated as a result of employee turnover and 70,000  additional  options were
granted during the year ended December 31, 2000 to employees of the Company, its
subsidiaries and affiliates.

The potential  realizable  values on date of grant of stock  options  granted in
1999 shown below are  presented  pursuant to SEC rule and are  calculated  using
assumed  annual  rates of stock  price  appreciation  for the option  term.  The
theoretical  values of options do not  necessarily  bear a  relationship  to the
compensation cost to the Company or potential gain realized by an executive. The
actual amount,  if any, realized upon exercise of stock options will depend upon
the market  price of the common  stock of the Company  relative to the  exercise
price of the stock option at the time the stock option is exercised. There is no
assurance that the theoretical  values of stock options  reflected in this table
actually will be realized.
<TABLE>


<S>                <C>                  <C>          <C>             <C>                        <C>

                                % of Total                                          Potential Realizable
                                  Options                                            Value at Assumed
                                Granted to                                          Annual Rates of Stock
                 Options         Employees      Exercise        Expiration        Price Appreciation for
Name            Granted (1)     During 1999       Price             Date              Option Term (2)

                                                                                       5%             10%

Roy F. Mitte     10,000           2.27%            $9.00           5/18/05         $14,434          $30,880
James M.
Grace            10,000           2.27%             9.00           5/18/05          14,434           30,880
Steven P.
Schmitt          10,000           2.27%             9.00           5/18/05          14,434           30,880
Jeffrey H.
Demgen           10,000           2.27%             9.00           5/18/05          14,434           30,880

</TABLE>

(1) The options shown in the preceding  table were each granted on May 18, 1999.
Options  vest  in 20%  increments  with  the  first  20%  vesting  on the  first
anniversary  of the  date  of  grant  and an  additional  20%  vesting  on  each
subsequent  anniversary.  The option period for each sequentially vested portion
of an option  is one year from the  respective  Anniversary  Date on which  said
portion of the option becomes partially exercisable.

(2) The potential  realizable  values on date of grant are  calculated  assuming
that the market price of the underlying  security  appreciates in value from the
date of the grant to the last date on which the options may be  exercised  at an
assumed annualized rate of 5% and,  alternatively,  10%. The calculations assume
that each vested option is exercised as of the initial date on which such vested
percentage may be exercised.


                                      -43-

<PAGE>

Aggregated Option Exercises in 1999 and 2000

The following  table sets forth  information  concerning  each exercise of stock
options during 1999 by each of the  individuals  who were executive  officers of
the Company as of December 31, 2000.


                              Shares
                             Acquired                   Value
Name                        On Exercise (#)(1)         Realized ($)

James M. Grace                24,000                   $191,215

Steven P. Schmitt(2)

(1) The number of shares  acquired upon  exercise of options  reflects the stock
dividend which was paid on March 17, 1999.

(2) Steven P. Schmitt was appointed as an executive officer in the year 2000 and
did not exercise any stock options during the year ended December 31, 2000.

No additional  options were exercised by executive officers of the Company under
the  InterContinental  Life  Corporation  1999 Stock Option Plan during the year
2000.

Aggregated Stock Option Values

The  following  table sets forth  information  with  respect to the  unexercised
options held by the executive officers of the Company.  The value of unexercised
in-the-money  stock  options at December  31, 2000 shown below are  presented in
accordance with SEC rules. The actual amount,  if any, realized upon exercise of
stock  options  will  depend  upon the market  price of the common  stock of the
Company relative to the exercise price per share of the stock option at the time
the  stock  option  is  exercised.  There is no  assurance  that the  values  of
unexercised  in-the-money stock options reflected in the following table will be
realized.


                                      -44-

<PAGE>

<TABLE>


                         Number of Unexercised                  Value of Unexercised
                              Options Held at                  In-the-Money Options at
                            December 31, 2000                    December 31, 20001
                      Exercisable      Unexercisable        Exercisable      Unexercisable
<S>                      <C>              <C>                  <C>              <C>


Roy F. Mitte            2,000            8,000                $1,000           $4,000

Jeffrey H. Demgen       2,000            8,000                 1,000            4,000

James M. Grace          2,000            8,000                 1,000            4,000

Steven P. Schmitt       2,000            8,000                 1,000            4,000

</TABLE>


(1)Based  on the  closing  price of the  Company's  common  stock on  NASDAQ  on
December 31, 2000 ($9.50).

Pension Plan Table

The following table sets forth estimated  annual pension  benefits  payable upon
retirement at age of 65 under the Company's noncontributory defined benefit plan
("Pension  Plan")  to an  employee  in  the  final  pay  and  years  of  service
classifications indicated, assuming a straight life annuity form of benefit. The
amounts  shown in the  table do not  reflect  the  reduction  related  to Social
Security benefits referred to below.

                                Years of Service

                                                                         30 or
Remuneration               15            20                25             more

$125,000               $29,437       $ 39,250          $ 49,062        $ 58,875
 150,000                35,325         47,100            58,875          70,650
 160,000                37,680         50,240            62,800          75,360
 175,000                41,212         54,950            68,687          82,425
 200,000                47,100         62,800            78,500          94,200

The normal retirement  benefit provided under the Pension Plan is equal to 1.57%
of final  average  eligible  earnings  less  0.65% of the  participant's  Social
Security  covered  compensation  multiplied  by the number of years of  credited
service (up to 30 years).  The compensation  used in determining  benefits under
the  Pension  Plan  is  the  highest  average  earnings  received  in  any  five
consecutive  full-calendar years during the last ten full- calendar years before
the participant's retirement date. The maximum amount of annual salary and bonus
that can be used in determining  benefits under the Pension Plan is $200,000 for
any year prior to 1994 and is $150,000 for 1994,  1995, and 1996 and is $160,000
for 1997 and each subsequent year.

                                      -45-

<PAGE>


The annual eligible earnings, for 2000 only, covered by the Pension Plan (salary
up to  $160,000)  with  respect  to the  individuals  reported  in  the  Summary
Compensation  Table were as  follows,  with their  respective  years of credited
service under the Pension Plan at December 31, 2000 being shown in  parentheses:
Mr. Mitte,  $160,000 (13 years),  Mr. Grace,  $160,000 (13 years),  Mr.  Demgen,
$160,000 (8 years), and Mr. Schmitt, $108,846 (29 years).

Compensation of Directors

Directors  who are not  officers or  employees  of the Company are paid a $5,000
annual fee, and are  compensated  $1,000 for each regular or special  meeting of
the Board of Directors  which they attend in person.  In the case of  telephonic
meetings of the Board, non-employee directors who participate in such telephonic
meetings are  compensated  $500 for such meeting.  Directors who participate via
telephone in a regular or special meeting which is held by other than conference
telephone are not entitled to a fee for such a meeting.

Non-employee directors serving on committees of the Board are compensated in the
amount of $500 for each committee meeting they attend whether such participation
is in person or by telephone,  provided that the committee  meeting is held on a
day other than that on which the Board meets.

Employment Agreements and Change In Control Arrangements

From 1991 to January,  2001, James Grace had an employment  agreement with ILCO,
which would become  effective  upon the  occurrence of certain events related to
(i) the  retirement  or date of death or  disability of Roy F. Mitte or (ii) the
date that any person who is not  currently a control  person with respect to the
Company  acquired,  or entered  into an  agreement  to  acquire,  control of the
Company, directly or indirectly. This agreement provided that Mr. Grace would be
entitled to perform all of the duties of the position or  positions  held by him
with the Company  and all  subsidiaries  of the Company on the date  immediately
preceding the commencement  date of the agreement and he would be entitled to an
annual  rate  of  compensation  which  is not  less  than  the  annual  rate  of
compensation  in effect as of the date  immediately  preceding the  commencement
date of the agreement.

This  agreement was superseded by an employment  agreement  between ILCO and Mr.
Grace which became effective on January 8, 2001. The new agreement  provides for
the  employment of Mr. Grace through August 12, 2005 at a salary of $195,000 per
year.  Mr.  Grace  shall  perform  the  duties he  performed  at the time of the
effective date of the agreement, or other similar duties as may be assigned from
time to time.  The  agreement  may be  terminated by the Company only in limited
circumstances. In the event of a change of control of the Company, the remaining
amounts payable under this agreement shall become immediately due and payable in
one lump sum and the agreement shall terminate.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The following  table presents  information as of March 6, 2001 as to all persons
who,  to the  knowledge  of the  Company,  were  beneficial  owners of five (5%)
percent or more of the Common Stock of the Company.

                                      -46-

<PAGE>

<TABLE>
<S>                                           <C>                          <C>

                                 Amount and Nature
Name and Address               of Beneficial Ownership         Percent of Class(7)

Financial Industries Corp.
6500 River Place Blvd.
Austin, TX 78730                     3,932,692 (1)                      48.3 %

Roy F. and Joann Cole Mitte
Foundation
6500 River Place Blvd.
Austin, Texas  78730                 3,932,692 (1, 2)                   48.3%

Roy F. Mitte
6500 River Place Blvd.
Austin, TX 78730                     3,998,983 (3, 4)                   49.1 %

Investors Life Insurance
Company of North America
6500 River Place Blvd.
Austin, TX 78730                       669,920 (5)                       8.2 %

Investors Life Insurance
Company of Indiana
6500 River Place Blvd.
Austin, TX 78730                       563,120 (6)                       6.9 %

Fidelity Management &
Research Company
82 Devonshire Street
Boston, MA 02109                       878,200 (8)                      10.8 %

Wellington Management
Company, LLP
75 State Street
Boston, MA 02109                       425,000 (9)                       5.2 %

</TABLE>


1.  Includes  3,590,292  shares owned by Financial  Industries  Corporation  and
342,400 shares owned by Family Life Insurance Company, a wholly-owned subsidiary
of FIC.

2. The Roy F. and Joann Cole Mitte  Foundation  owns 1,552,206  common shares of
Financial  Industries  Corporation  ("FIC").  The holdings by the  Foundation of
FIC's common stock constitutes  30.71 % of the outstanding  common stock of that
company.   The  Roy  F.  and  Joann  Cole  Mitte   Foundation  is  a  non-profit
corporation/membership  organization  and its two  members  are Roy F. Mitte and
Joann

                                      -47-

<PAGE>

Cole Mitte.  The Internal  Revenue Service has determined that the Foundation is
exempt from federal income tax under section 501(a) of the Internal Revenue Code
(the "Code") as an organization described in section 501(c)(3) of the Code.

3. Mr.  Mitte is  President,  Director and a Member of the Roy F. and Joann Cole
Mitte  Foundation.  In  addition,  Mr.  Mitte holds the  positions  of Chairman,
President and Chief Executive Officer of both ILCO and FIC. For purposes of this
table, Mr. Mitte's personal  holdings in the Company have been combined with the
holdings  of FIC  in  determining  the  amount  and  percentage  of Mr.  Mitte's
beneficial ownership of the Company.

4. Includes  32,091 shares  allocated to Mr. Mitte's account under the Employees
Stock Ownership Plan, 32,200 shares owned directly by Mr. Mitte and 2,000 shares
which may be acquired pursuant to options which are exercisable within 60 days.

5.  Represents  563,120  shares owned by  Investors-IN  and 106,800 shares owned
directly by Investors- NA.  Investors-IN is a life insurance company  subsidiary
of Investors-NA.

6. All are directly owned by Investors-IN.

7. Assumes that  outstanding  stock options  available to other persons have not
been exercised.

8. As  reported  to the Company on a Schedule  13(G),  as amended,  filed by FMR
Corporation,  the  parent  company of  Fidelity  Management  & Research  Company
("Fidelity").  According  to  the  Schedule  13(G)  filings,  Fidelity  acts  as
investment  advisor  to  the  Fidelity   Low-Priced  Stock  Fund,  a  registered
investment  company,  and the Fund is the owner of 878,200 shares of ILCO common
stock.

9. As reported on a Schedule 13(G) filed by Wellington  Management Company,  LLP
("WMC") on February 14, 2001.  According to the Schedule 13(G) filing,  WMC acts
as investment  advisor to certain clients of WMC and such clients have the right
to  receive,  or the power to direct the  receipt  of,  dividends  from,  or the
proceeds from the sale of, such  securities.  The filing  further states that no
such client is known to have such right or power with  respect to more than five
percent of the common stock of the Company.

The following  table  contains  information as of March 6, 2001 as to the common
stock of the Company  beneficially  owned by each director and executive officer
and by all  executive  officers  and  directors  of the Company as a group.  The
information  contained  in the table has been  obtained by the Company from each
director and  executive  officer  except for  information  known to the Company.
Except as indicated in the notes to the table,  each  beneficial  owner has sole
voting  power and sole  investment  power as to the shares  listed  opposite his
name.


                                      -48-

<PAGE>


                             Amount and Nature of                 Percent of
Name                         Beneficial Ownership (2, 3)             Class

Robert A. Bender                4,739                                  *

Jeffrey H. Demgen              10,433                                  *

Theodore A. Fleron             21,240                                  *

W. Lewis Gilcrease                 -0-

James M. Grace                 99,924                              1.2 %

Richard A. Kosson                 200                                  *

Roy F. Mitte (1)            3,998,983                              49.1%

Michael Scott Mitte                30                                  *

Elizabeth T. Nash                 200                                  *

Eugene E. Payne                20,822                                  *

Steven P. Schmitt              14,375                                  *

All Executive
Officers and
Directors as a
group, all of
whom are listed
above                       4,170,946                            51.2 %

* Less than 1%

(1) As an  executive  officer  and  director  of FIC,  which as of March 6, 2001
beneficially owned 3,932,692 shares of the Company's common stock .

(2) Includes shares beneficially acquired through participation in the Company's
Employees  Stock  Ownership  Plan,  401K Plan and/or the Employee Stock Purchase
Plan, which are group plans for eligible employees.

                                      -49-

<PAGE>

(3) Include  shares  issuable  upon  exercise of options  granted under the 1999
Non-Qualified Stock Option Plan to executive officers and directors who are also
employees  of the Company or its  subsidiaries,  to the extent that such options
are exercisable within 60 days of March 6, 2001.

Item 13.  Certain Relationships and Related Transactions with Management

1. As part of the  financing  arrangement  for the  acquisition  of Family  Life
Insurance Company, Family Life Corporation ("FLC"), a subsidiary of FIC, entered
into a Senior Loan agreement  under which $50 million was provided by a group of
banks. The balance of the financing consisted of a $30 million subordinated note
issued by FLC to Merrill Lynch Insurance Group,  Ins.  ("Merrill Lynch") and $14
million borrowed by another subsidiary of FIC from an affiliate of Merrill Lynch
and  evidenced  by a senior  subordinated  note in the  principal  amount of $12
million and a junior subordinated note in the principal amount of $2 million and
$25 million  lent by two  insurance  company  subsidiaries  of ILCO.  The latter
amount was  represented by a $22.5 million loan from  Investors-NA  to FLC and a
$2.5 million loan provided  directly to FIC by Investors-CA.  In addition to the
interest provided under those loans,  Investors-NA and Investors-CA were granted
by FIC  non-transferable  options to purchase,  in the amounts  proportionate to
their  respective  loans, up to a total of 9.9 percent of shares of FIC's common
stock at a price of  $10.50  per share  ($2.10  per  share as  adjusted  for the
five-for-one  stock split in  November,  1996),  equivalent  to the then current
market price, subject to adjustment to prevent dilution. The original provisions
of the options  provided for their expiration on June 12, 1998 if not previously
exercised.  In connection with the 1996 amendments to the subordinated notes, as
described  below,  the expiration date of the options were extended to September
12, 2006.

On July 30, 1993, the  subordinated  indebtedness  owed to Merrill Lynch and its
affiliate  was prepaid.  The Company  paid $38 million plus accrued  interest to
retire the  indebtedness,  which had a principal  balance of  approximately  $50
million on July 30,  1993.  The  primary  source of the funds used to prepay the
subordinated debt was new subordinated loans totaling $34.5 million that FLC and
another  subsidiary of FIC obtained from  Investors-NA.  The principal amount of
the new subordinated debt is payable in four equal annual  installments in 2000,
2001,  2002 and 2003 and bears interest at an annual rate of 9%. The other terms
of the new  debt are  substantially  the  same as  those  of the  $22.5  million
subordinated  loans  that  Investors-NA  had  previously  made to FLC  and  that
continue to be outstanding.

In June, 1996, the provisions of the notes from Investors-NA to FIC, Family Life
Corporation ("FLC") and Family Life Insurance  Investment Company ("FLIIC") were
modified  as  follows:  (a) the $22.5  million  note was  amended to provide for
twenty  quarterly  principal  payments,  in the amount of  $1,125,000  each,  to
commence on December 12, 1996; the final quarterly  principal  payment is due on
September  12, 2001;  the interest  rate on the note remains at 11%, (b) the $30
million note was amended to provide for forty quarterly principal  payments,  in
the amount of $163,540  each for the period  December 12, 1996 to September  12,
2001;  beginning with the principal payment due on December 12, 2001, the amount
of the principal payment increases to $1,336,458;  the final quarterly principal
payment is due on September  12, 2006;  the interest rate on the note remains at
9%,  (c) the $4.5  million  note was  amended  to  provide  for forty  quarterly
principal  payments,  in the amount of $24,531 each for the period  December 12,
1996 to September 12, 2001; beginning with the principal payment due on December
12, 2001, the amount of the principal payment  increases to $200,469;  the final
quarterly  principal  payment is due on September 12, 2006; the interest rate on
the note  remains at 9%, (d) the $2.5  million  note was amended to provide that
the  principal  balance  of  the  note  is  to be  repaid  in  twenty  quarterly
installments  of  $125,000  each,  commencing  December  12, 1996 with the final
payment due on September 12, 2001;  the rate of interest  remains at 12% and (e)
the Master PIK note,  which was  issued to  provide  for the  payment in kind of
interest  due under the terms of the $2.5  million  note prior to June 12, 1996,
was amended to provide that the principal  balance of the note  $1,977,119 is to
be paid in twenty  quarterly  principal  payments,  in the amount of  $98,855.95
each, to commence  December 12, 1996 with the final payment due on September 12,
2001; the interest rate on the note remains at 12%.

                                      -50-


<PAGE>



In December, 1998, FLIIC was dissolved. In connection with the dissolution,  all
of the assets and  liabilities  of FLIIC became the  obligations of FLIIC's sole
shareholder (FIC). Accordingly, the obligations under the provisions of the $4.5
million note described above are now the obligations of FIC.

2. The data  processing  needs of ILCO's and FIC's  insurance  subsidiaries  are
provided by FIC Computer Services,  Inc. ("FIC Computer"),  a subsidiary of FIC.
Under the provisions of the data  processing  agreement,  FIC Computer  provides
data processing  services to each subsidiary for fees equal to such subsidiary's
proportionate  share of FIC Computer's  actual costs of providing those services
to all of the subsidiaries. The Company's insurance subsidiaries paid $2,427,000
million  and  Family  Life paid  $1,758,000  million  to FIC  Computer  for data
processing services provided during the year ended December 31, 2000.

3. In 1995,  Investors-NA entered into a reinsurance  agreement with Family Life
pertaining to universal life insurance  written by Family Life. The  reinsurance
agreement is on a  co-insurance  basis and applies to all covered  business with
effective dates on and after January 1, 1995. The agreement applies to only that
portion  of the face  amount of the  policy  which is less than  $200,000;  face
amounts of  $200,000  or more are  reinsured  by Family  Life with a third party
reinsurer.

4. In 1996,  Investors-NA entered into a reinsurance agreement with Family Life,
pertaining to annuity contracts written by Family Life. The agreement applies to
contracts written on or after January 1, 1996.

5. Roy F. Mitte serves as Chairman,  President  and Chief  Executive  Officer of
both FIC and ILCO.  James M.  Grace  serves  as Vice  President,  Treasurer  and
Director  of both  companies.  Steven  P.  Schmitt  serves  as  Vice  President,
Secretary  and Director of both  companies.  Messrs.  Demgen and Fleron serve as
Vice Presidents and Directors of both companies.  Mr. Roy Mitte, through the Roy
F. and Joann Cole Mitte Foundation,  holds beneficial ownership of 30.71% of the
outstanding shares of FIC (see "Security  Ownership of Certain Beneficial Owners
and Management").

                                      -51-


<PAGE>

6. On January 8, 2001,  the  Compensation  Committee of the Company  recommended
that the Company  make a donation of $375,000 to the Roy F. and Joann Cole Mitte
Foundation  (the  "Foundation").  At the Company's board meeting held on January
17, 2001, the Board of Directors  approved the donation to the  Foundation.  The
Foundation is a charitable  entity exempt from federal  income tax under section
501(a) of the Code as an  organization  described  in section  501(c)(3)  of the
Code, and owns 30.71% of the outstanding  shares of FIC's common stock. The sole
members  of the  Foundation  are Roy F.  Mitte,  Chairman,  President  and Chief
Executive Officer of FIC, the Company and their insurance subsidiaries,  and his
wife, Joann Cole Mitte.

                                     Part IV

Item 14.  Exhibits, Financial Statements, Schedules, and Reports on Form 8-K

(a)      The following documents have been filed as part of this Report:

1.       Financial Statements as identified in Item 8 above.

2.       Financial Statement Schedules Required to be filed by Item 8.

          a. Schedule I-Summary of Investments other than Investments in Related
             Parties.
          b. Schedule II -Condensed Financial Statements of Registrant.

          c. Schedule IV-Reinsurance.

3.        Exhibits  filed with this report or  incorporated  herein by reference
          are as listed in the Index to  Exhibits  on page EX-1.

(b) Reports on Form 8-K:

          No  reports  on Form 8-K were  filed  during  the last  quarter of the
          fiscal year ended December 31, 2000.

                                      -52-
<PAGE>



                                   SIGNATURES


          Pursuant to the requirements of Section 13 or 15 (d) of the Securities
          Exchange Act of 1934, the Registrant has duly caused this report to be
          signed on its behalf by the undersigned, thereunto duly authorized.

                        InterContinental Life Corporation
                                  (Registrant)


By:      /s/ Roy F. Mitte                   By:      /s/ James M. Grace
         Roy F. Mitte, Chairman of                   James M. Grace, Treasurer,
         the Board, President and                    Principal Accounting
         Chief Executive Officer                     and Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the  capacities  indicated on March 30,  2001.

         /s/ Roy F. Mitte                           /s/ James M. Grace
         Roy F. Mitte, Director                     James M. Grace, Director

         /s/ Eugene E. Payne                        /s/ Jeffrey H. Demgen
        Eugene E. Payne, Director                   Jeffrey H. Demgen, Director

         /s/ Robert A. Bender                       /s/ Theodore A. Fleron
         Robert A. Bender, Director                 Theodore A. Fleron, Director

         /s/ W. Lewis Gilcrease                     /s/ Richard A. Kosson
         W. Lewis Gilcrease, Director               Richard A. Kosson, Director

         /s/ Elizabeth T. Nash                      /s/ M. Scott Mitte
         Elizabeth T. Nash, Director                M. Scott Mitte, Director

         /s/ Steven P. Schmitt
         Steven P. Schmitt, Director







                                      -53-


<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                        FORM 10-K--ITEM 14 (a)(1) and (2)
                          LIST OF FINANCIAL STATEMENTS
                                TABLE OF CONTENTS



(1)     The following  consolidated  financial  statements of InterContinental
        Life Corporation and Subsidiaries are included in Item 8:

         Report of Independent Accountants..................................F-2

         Consolidated Balance Sheets,
         December 31, 2000 and 1999.........................................F-3

         Consolidated Statements of Income, for the
         years ended December 31, 2000, 1999 and 1998.......................F-5

         Consolidated Statements of Changes in Shareholders' Equity,
         for the years ended December 31, 2000, 1999 and 1998...............F-6

         Consolidated Statements of Cash Flows, for the years
         ended December 31, 2000, 1999 and 1998.............................F-9

         Notes to Consolidated Financial Statements................. .......F-12

(2)      The following consolidated financial statement schedules of
         InterContinental Life Corporation and Subsidiaries are included:

         Schedule I - Summary of Investments Other
         Than Investments in Related Parties......................... ......F-44

         Schedule II - Condensed Financial Statements of
         Registrant.........................................................F-45

         Schedule IV - Reinsurance..........................................F-49



All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, or are not applicable, and therefore have been omitted.







                                       F-1

<PAGE>





                        REPORT OF INDEPENDENT ACCOUNTANTS



To The Board of Directors and Shareholders of InterContinental Life Corporation


In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 14(a) (1) and (2) on page F-1 present fairly,  in all
material respects,  the financial position of InterContinental  Life Corporation
and its  subsidiaries  (the  "Company")  at December 31, 2000 and 1999,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2000, in conformity  with  accounting  principles
generally accepted in the United States of America. In addition, in our opinion,
the financial  statement  schedules  listed in the index appearing under Item 14
(a) (1) on page F-1 present fairly,  in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial  statements.   These  financial  statements  and  financial  statement
schedules are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial  statements and financial  statement
schedules  based on our audits.  We conducted our audits of these  statements in
accordance with auditing  standards  generally  accepted in the United States of
America,  which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.




PricewaterhouseCoopers LLP
Dallas, Texas
April 2, 2001













                                       F-2
<PAGE>




               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                            (in thousands of dollars)
                                  December 31,
<TABLE>
<S>                                                <C>                  <C>


                                                   2000                1999
ASSETS

Investments:
Fixed maturities held to maturity, at
 amortized cost (market value
 approximates $1,386 and $2,056)             $    1,386          $    2,088
Fixed maturities available for sale,
 at market value (amortized cost
 $436,997 and $411,532)                         440,749              404,217
Equity securities, at market value
 (cost approximates $338 and $338)                1,764                1,943
Policy loans                                     48,449               50,882
Mortgage loans                                    4,858                6,844
Invested real estate and other
 invested assets                                 32,969               21,145
Short-term investments                          129,807              191,695

       Total investments                        659,982              678,814

Cash and cash equivalents                         9,066                3,358
Notes receivable from affiliates                 35,349               41,497
Accrued investment income                         8,304                7,529
Accounts receivable and other receivables        24,340               24,230
Reinsurance receivables                          17,448               18,769
Real estate occupied by the Company              19,938                  -0-
Property and equipment, net                       5,005                4,416
Deferred policy acquisition costs                39,395               35,598
Present value of future profits of
 acquired business                               36,024               39,831
Other assets                                      7,866                9,304
Separate account assets                         444,898              457,853

       Total Assets                          $1,307,615          $ 1,321,199

</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       F-3

<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS, Continued
                  (in thousands of dollars, except share data)
<TABLE>
<S>                                                   <C>               <C>

                                                            December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY                  2000             1999

Liabilities:
Policy liabilities and contractholder
deposit funds:
Future policy benefits                       $     130,325       $   130,092
Contractholder deposit funds                       520,349           533,869
Unearned premiums                                    1,589             1,977
Other policy claims and benefits payable            10,801             9,893
                                                   663,064           675,831

Other policyholders' funds                           3,015             3,012
Deferred federal income taxes                       27,188            21,741
Other liabilities                                   10,045            14,635
Separate account liabilities                       440,127           454,289

    Total Liabilities                            1,143,439         1,169,508

Commitments and Contingencies
 (Note 6, 8, 11, 13 and 16)
Redeemable preferred stock:
Class A Preferred, $1 par value, 5,000,000
 shares authorized, issued                           5,000             5,000
Class B Preferred, $1 par value, 15,000,000
 shares authorized, issued                          15,000            15,000
                                                    20,000            20,000
Redeemable preferred stock held in treasury        (20,000)          (20,000)
                                                       -0-               -0-
Shareholders' Equity:
Common Stock, $.22 par value, 15,000,000 shares
 authorized; 10,859,478 and 10,855,478
 shares issued, and 8,129,385 and 8,827,941
 shares outstanding in 2000 and 1999,
 respectively                                        2,389             2,388
Additional paid-in capital                           4,561             4,526
Accumulated other comprehensive income (loss)        3,365            (3,712)
Retained earnings                                  163,998           151,932
                                                   174,313           155,134
Common treasury stock, at cost, 2,730,093
 and 2,027,537 shares in 2000 and 1999,
 respectively                                      (10,137)           (3,443)
Total Shareholders' Equity                         164,176           151,691
Total Liabilities and Shareholders'
 Equity                                      $   1,307,615       $ 1,321,199

</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       F-4
<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
              (in thousands of dollars, except for per share data)

<TABLE>
<S>                                 <C>            <C>                 <C>
                                            Year Ended December 31,
                                   2000            1999             1998

Revenues:

 Premium                       $  10,873     $    11,132         $    10,890
 Net investment income            50,893          49,913              54,619
 Earned insurance charges         38,500          40,447              41,067
 Gain on sale of real estate         -0-             112                 -0-
 Other                             3,490           2,601               2,886
                                 103,756         104,205             109,462
Benefits and expenses:
 Policyholder benefits and
  expenses                        32,460          32,001              38,367
 Interest expense on contract
  holders deposit funds           28,794          30,229              29,966
 Amortization of present
  value of future profits of
  acquired businesses              3,807           3,835               5,903
 Amortization of deferred
  policy acquisition costs         2,505           2,372               2,128
 Operating expenses               17,103          17,029              14,853
 Interest expense                    -0-             -0-                 659
                                  84,669          85,466              91,876

Income from operations            19,087          18,739              17,586
Provision for federal
 income taxes:
   Current                         5,385           5,955               6,899
   Deferred                        1,636              19                (432)
                                   7,021           5,974               6,467
Net income                     $  12,066     $    12,765         $    11,119

Net income per share (Note 14):
Basic:
 Weighted average common stock
  outstanding                      8,333           8,796               8,750
Basic earnings per share       $    1.45     $      1.45         $      1.27
Diluted:
Common stock and common stock
 equivalents                       8,343           8,800               8,924
Diluted earnings per share     $    1.45     $      1.45         $      1.25

</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-5
<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<S>                                      <C>             <C>            <C>
                                                                        Additional
                                        Common Stock                     Paid-in
                                           Shares        Amount          Capital

Balance at December 31, 1997                5,344      $  1,176     $    4,253
Comprehensive Income:
 Net income
 Other comprehensive income:
Change in net unrealized appreciation
 of equity securities
Change in net unrealized gain on
 investments in fixed maturities
 available for sale
Total comprehensive income
Options exercised                              42             9            132
Balance at December 31, 1998                5,386         1,185          4,385
Comprehensive income:
  Net income
Other comprehensive income:
 Change in net unrealized appreciation
 of equity securities
Change in net unrealized gain on
 investments in fixed maturities
 available for sale
Total comprehensive income
Stock dividend paid                        5,405         1,189
Treasury stock purchased and reissued
Options exercised                             64            14             141
Balance at December 31, 1999              10,855         2,388           4,526
Comprehensive income:
 Net income
Other comprehensive income:
Change in net unrealized appreciation
 of equity securities
Change in net unrealized gain on
 investments in fixed maturities
 available for sale
Total comprehensive income
Treasury stock purchased and reissued
Options exercised                              4             1              35
Balance at December 31, 2000              10,859      $  2,389     $     4,561
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.




                                       F-6

<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                            (in thousands of dollars)
<TABLE>


                                     Accumulated Other Comprehensive Income

  <S>                              <C>                <C>               <C>
                                               Net Unrealized
                                  Net          Gain (Loss) on
                               Unrealized       Investments         Total
                               Appreciation      In Fixed        Accumulated
                              (Depreciation)     Maturities         Other
                                 of Equity       Available      Comprehensive
                               Securities        For Sale       Income (Loss)

Balance at December 31, 1997   $    2,946      $  11,457       $   14,403
 Comprehensive income:
   Net income
 Other comprehensive income:
   Change in net unrealized
    appreciation of equity
    securities                     (1,137)                         (1,137)
   Change in net unrealized
    gain on investments in
    fixed maturities available
    for sale                                      (1,695)          (1,695)
 Total comprehensive income        (1,137)        (1,695)          (2,832)
 Options exercised
Balance at December 31, 1998        1,809          9,762            11,571
 Comprehensive income:
   Net income
 Other comprehensive income:
   Change in net unrealized
    appreciation of equity
    securities                       (766)          (766)
   Change in net unrealized
    gain on investments in fixed
    maturities available for sale                (14,517)          (14,517)
 Total comprehensive income          (766)       (14,517)          (15,283)
Stock dividend paid
Treasury stock purchased
 Options exercised
Balance at December 31, 1999        1,043         (4,755)           (3,712)
Comprehensive income:
  Net income
Other comprehensive income:
 Change in net unrealized
  appreciation of equity
  securities                         (117)                            (117)
 Change in net unrealized loss
  on investments in fixed
  maturities available for sale                    7,194             7,194
 Total comprehensive income          (117)         7,194             7,077
 Treasury stock purchased and reissued
 Options exercised
Balance at December 31, 2000   $      926      $   2,439       $     3,365

</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-7
<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                            (in thousands of dollars)

<TABLE>
<S>                                  <C>               <C>               <C>
                                                       Common           Total
                                   Retained           Treasury       Shareholders'
                                   Earnings            Stock            Equity

Balance at December 31, 1997      $   129,237     $    (3,307)    $     145,762
Comprehensive income:
Net income                             11,119                            11,119
Other comprehensive income:
Change in net unrealized
 appreciation of equity
 securities                                                              (1,137)
Change in net unrealized gain
 on investments in fixed
 maturities available for sale                                           (1,695)
Total comprehensive income             11,119                             8,287
Treasury stock purc hased                                  45                45
Options exercised                                                           141
Balance at December 31, 1998          140,356          (3,262)          154,235
Comprehensive income:
Net income                             12,765                            12,765
Other comprehensive income
Change in net unrealized
 appreciation of equity
 securities                                                                (766)
Change in net unrealized gain
 on investments in fixed
 maturities available or sale                                           (14,517)
Total comprehensive income             12,765                            (2,518)
Stock dividend paid                    (1,189)
Treasury stock purchased
 and reissued                                            (181)             (181)
Options exercised                                                           155
Balance at December 31, 1999          151,932          (3,443)          151,691
Comprehensive income:
Net income                             12,066                            12,066
Other comprehensive income:
Change in net unrealized
 appreciation of equity securities                                         (117)
Change in net unrealized loss
 on investments in fixed maturities
 available for sale                     7,194
Total comprehensive income             12,066                            19,143
Treasury stock purchased and
 reissued                                              (6,694)           (6,694)
Options exercised                                          36
Balance at December 31, 2000      $   163,998     $   (10,137)    $     164,176

</TABLE>



              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-8
<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)
<TABLE>
<S>                                 <C>                 <C>               <C>

                                                Year Ended December 31,
CASH FLOWS FROM OPERATING          2000               1999                1998
ACTIVITIES

Net Income                     $    12,066     $    12,765         $    11,119
Adjustments to reconcile
 net income to
 net cash used
 in operating activities:

Amortization of present
 value of future profits
 of acquired businesses              3,807           3,835               5,903
Amortization of deferred
 policy acquisition costs            2,505           2,372               2,128
Depreciation                           848             488                 551
Net gain on sales of
 investments                           -0-            (112)               (988)
Financing costs amortized              -0-             -0-                 111
Amortization of deferred gain
 on sale of real estate               (110)           (110)               (110)
Changes in assets and liabilities:
(Increase) decrease in accrued
 investment income                    (775)            239                 698
Decrease (increase) in agent
 advances and other receivables      1,211          (3,399)             (7,686)
Policy acquisition costs deferred   (6,302)         (6,017)             (5,460)
Decrease in policy liabilities and
 contractholder deposit funds      (12,767)        (18,520)            (16,194)
Increase (decrease) in other
 policyholders' funds                    3             (44)               (668)
Decrease in other liabilities       (4,480)         (5,382)             (1,036)
Increase (decrease) in
 deferred federal income taxes       5,447          (8,444)             (2,355)
Decrease (increase) in other assets  1,438           1,339              (2,691)
Other, net                          (4,804)            100                (653)
Net cash used in operating
 activities                         (1,913)        (20,890)            (17,331)

</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-9

<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)

<TABLE>
<S>                                   <C>             <C>                <C>

                                             Year Ended December 31,
CASH FLOWS FROM INVESTING               2000            1999            1998
ACTIVITIES

Purchase of insurance subsidiary         -0-             -0-           (1,322)
Investments purchased               (100,710)        (79,308)         (41,915)
Proceeds from sales and maturities
 of investments                       47,761         106,517           77,700
Net change in short-term investments  61,888         (19,855)          (7,218)
Purchases and retirements of
 equipment,  net                        (808)         (1,434)          (2,119)
Decrease in notes receivable from
 affiliates                            6,148           6,148            6,148
Net cash provided by investing
 activities                           14,279          12,068           31,274

CASH FLOWS FROM FINANCING
ACTIVITIES
(Purchase) re-issuance of
 treasury stock                       (6,694)           (181)              45
Issuance of common stock                  36             155              141
Repayment of debt                        -0-             -0-          (10,964)
Net cash used in financing
 activities                           (6,658)            (26)         (10,778)
Net increase (decrease) in cash
 and cash equivalents                  5,708          (8,848)           3,165
Cash and cash equivalents, beginning of
     year                              3,358          12,206            9,041
Cash and cash equivalents,
 end of year                   $       9,066   $       3,358   $       12,206
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-10

<PAGE>




         INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED
                            STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)


Supplemental Cash Flow Disclosures:
                                               Year Ended December 31,
                                   2000                1999              1998

Income taxes paid              $  4,700        $      9,050       $    11,700
Interest paid                  $    272        $        461       $       871

Supplemental Schedule of Non-Cash Investing Activities:

The Company  purchased  the  outstanding  capital stock of a life insurer in the
second  quarter of 1998 for cash purchase  price of $16.6  million  (including a
$12.4 million dividend paid by the acquired  company to its former parent),  net
of post closing adjustments.  The consolidated  statements of cash flows reflect
the impact of this acquisition.  This purchase resulted in the Company receiving
tangible assets and assuming liabilities as follows:

                                                               1998

                  Assets                                     $57,745
                  Liabilities                                $41,135















              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-11
<PAGE>



           INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES NOTES TO
                        CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization

InterContinental  Life  Corporation  (ILCO  or  the  "Company")  is  principally
engaged,  through its  subsidiaries,  in  administering  existing  portfolios of
individual  life  insurance  and  annuity  products.   The  Company's  insurance
subsidiaries  are also  engaged in the business of  marketing  and  underwriting
individual life insurance and annuity  products in 49 states and the District of
Columbia. Such products are marketed through independent,  non-exclusive general
agents.

Principles of Consolidation

The consolidated  financial  statements include the accounts of InterContinental
Life Corporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Basis of Presentation

The  financial  statements  have been  prepared in  conformity  with  accounting
principles  generally accepted in the United States of America which differ from
statutory  accounting  principles  required by  regulatory  authorities  for the
Company's insurance  subsidiaries.  Significant  accounting policies followed by
the Company are:

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results will differ from those estimates.

Investments

The Company's general investment philosophy is to hold fixed maturity securities
until  maturity.  However,  fixed  maturities  may be sold prior to the maturity
dates in response  to  changing  market  conditions,  duration  of  liabilities,
liquidity  factors,  interest  rate  movements  and  other  investment  factors.
Accordingly,  most fixed  maturity  investments  are classified as available for
sale and are carried at market value.  All other fixed maturities are carried at
the  lower of  amortized  cost or net  realizable  value as  management  has the
positive  intent and the  Company has the  ability to hold such  investments  to
maturity.  Unrealized gains and losses on securities  available for sale are not
recognized  in earnings  but are  reported as a separate  component of equity in
accumulated other comprehensive income, net of income tax effect.





                                      F-12
<PAGE>



               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

While  collateralized  mortgage  obligations (CMOs) are carried at market value,
premiums and  discounts on CMOs are  amortized  over the stated  maturity of the
CMOs, with  consideration  given to estimates of prepayments in the amortization
of  those  premiums  and  discounts.  The  Company  endeavors  to  minimize  the
portfolio's  exposure to interest  rate changes  inherent in  interest-sensitive
products by selecting and selling  investments so that  diversity,  maturity and
liquidity factors approximate the duration of related policyholder liabilities.

Equity  securities are carried at market value.  Unrealized  gains and losses on
equity  securities,  net of deferred income taxes, if applicable,  are reflected
directly  in   shareholders'   equity  as  a  component  of  accumulated   other
comprehensive  income.  Mortgage  loans and policy  loans are recorded at unpaid
balances.  Short-term investments are carried at cost, which approximates market
value,  and generally  consist of those fixed  maturities and other  investments
that are intended to be held less than one year from the date of purchase.

Real estate is carried at cost less accumulated depreciation, which is generally
calculated  using the  straight-line  method  over 20 to 40  years.  Accumulated
depreciation  on  investments  in real estate is  $2,554,962  and  $2,126,231 at
December 31, 2000 and 1999, respectively.

Realized gains and losses on disposal of investments are included in net income.
The cost of investments sold is determined on the specific identification basis,
except  for  equity  securities,  for which the  first-in,  first-out  method is
employed.  When an impairment of the value of an investment is considered  other
than  temporary,  the  decrease in value is reported in net income as a realized
investment loss and a new cost basis is established.

Cash and Cash Equivalents

Short-term  investments  with  maturities of three months or less at the time of
purchase are reported as cash equivalents.

Sale of Real Estate

Prior to December,  1999, Investors-NA owned an office building,  located at 206
West Pearl Street,  Jackson,  Mississippi,  which was the former headquarters of
Standard Life Insurance Company the ("Standard Life Building").  On December 29,
1999,   Investors-NA   donated  the  Standard   Life  Building  to  the  Jackson
Redevelopment  Authority  ("JRA").  Contemporaneously  with the  donation of the
Standard  Life  Building,  Investors-NA  and  Financial  Industries  Corporation
("FIC") sold all of the adjacent  parcels they owned to the JRA for a total sale
price of  $2,500,000.00,  which has been  allocated  according to the respective
ownership   interests   of   Investors-NA   (approximately   59.28%)   and   FIC
(approximately  40.72%). The donation and sale was made pursuant to the terms of
the  Donation,  Purchase and Sale  Agreement  dated July 17, 1998.  Investors-NA
claimed an income  tax  deduction  on tax  return  filed in 2000 in an amount of
$864,231.  The donation and sale transaction  referenced above resulted in a net
gain (GAAP  basis) of $0.992  million for ILCO and $0.409  million for FIC (or a
combined total of $1.401 million).

                                      F-13
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

Property  and  equipment  is  stated  at  cost  less  accumulated  depreciation.
Depreciation is calculated  using  straight-line  and  accelerated  methods over
estimated  useful lives of 10 to 33 years for buildings and  improvements and 10
years for  furniture  and  equipment.  Maintenance  and  repairs  are charged to
expense when incurred.  Accumulated  depreciation for property and equipment and
home office real estate was  $5,124,279  and $4,630,102 at December 31, 2000 and
1999, respectively.

Deferred Acquisition Costs

The  cost  of  acquiring  new  and  renewal  business,  principally  first  year
commissions  and  certain  expenses  of the  policy  issuance  and  underwriting
departments,  which vary with and are primarily related to the production of new
and renewal business, have been deferred to the extent recoverable.  Acquisition
costs  related to universal  life products are deferred and amortized to expense
using  actuarial  methods  that  include the same  assumptions  used to estimate
future  policy  benefits in  proportion  to the ratio of estimated  annual gross
profits  to  total  estimated  gross  profits  over  the  expected  lives of the
contracts.  Acquisition costs related to traditional life insurance business are
deferred and amortized over the premium paying period of the related policies.

Present Value of Future Profits

The present  value of future  profits of acquired  traditional  life business is
amortized over the premium  paying period of the related  policies in proportion
to the ratio of the annual premium revenue to total anticipated  premium revenue
applicable to such policies.  Interest on the unamortized balance is accreted at
rates from 7.0% to 8.5%.

For  interest-sensitive  products,  these costs are amortized in relation to the
present  value,  using the current  credited  interest  rate, of expected  gross
profits of the policies over the anticipated coverage period.

Retrospective  adjustments  of  these  amounts  are made  periodically  upon the
revision of estimates of current or future gross profits on universal  life-type
products  to be realized  from a group of  policies.  Recoverability  of present
value of future  profits is  evaluated  periodically  by  comparing  the current
estimate of future profits to the unamortized asset balances.

Anticipated  investment  returns,  including realized gains and losses, from the
investment  of   policyholder   balances  are  considered  in  determining   the
amortization of present value of future profits acquired.

Deferred Financing Costs

Financing costs associated with the Company's Senior Loan were deferred and were
amortized over the borrowing periods using the interest method.



                                      F-14
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Separate Accounts

Separate  account assets,  carried at market value,  and  liabilities  represent
policyholder funds maintained in accounts having specific investment objectives.
The net investment income,  gains and losses of these accounts,  less applicable
contract  charges,  generally accrue directly to the  policyholders  and are not
included in the Company's  statement of income, with the exception for the gains
and losses in the Company's seed money in the separate accounts.

Solvency Laws Assessments

The solvency or guaranty  laws of most states in which the  Company's  insurance
subsidiaries do business may require the Company's insurance subsidiaries to pay
assessments (up to certain  prescribed  limits) to fund  policyholder  losses or
liabilities of insurance companies that become insolvent.  These assessments may
be deferred  or  forgiven  under most  guaranty  laws if they would  threaten an
insurer's  financial strength and, in certain  instances,  may be offset against
future premium taxes. The Company's insurance subsidiaries' expense for guaranty
fund  assessment  from  states  which do not allow  premium  tax  offsets is not
material.

Policy Liabilities and Contractholder Deposit Funds

Liabilities for future policy benefits  related to traditional life products are
accrued as premium revenue is recognized. The liabilities are computed using the
net level premium method, or an equivalent actuarial method, based upon industry
and  Company  experience  of  investment  yields,   mortality  and  withdrawals,
including  provisions for possible adverse  deviation.  The liability for future
policy benefits for traditional  life policies is graded to reserves  stipulated
by regulatory authorities over a 30-year period or the end of the premium paying
period, if less.

Contractholder  deposit funds are  liabilities  for  universal  life and annuity
products.  These  liabilities  consist of deposits  received from  customers and
accumulated net investment  income on their fund balances,  less  administrative
charges.  Universal life fund balances are also assessed mortality charges.  The
cash value benefit for these products is based on actual crediting rates,  which
are lower than assumed investment yields.

Liabilities for future policy benefits related to non-cancelable  and guaranteed
renewable  accident  and health  contracts  are  computed  based on industry and
Company experience and estimated future investment yields ranging from 4 1/2% to
6%. Unearned  premium reserves for credit life and accident and health contracts
are  computed  on  either  the  sum-of-the-year's  digits  or pro  rata  methods
depending upon the type of coverage.  In December,  1997,  ILCO's life insurance
subsidiaries   entered  into  a  reinsurance  treaty  under  which  all  of  the
contractual  obligations and risks under accident and health insurance  policies
were assumed by a third party reinsurer. (See Note 8.)




                                      F-15
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Policy Claims and Benefits Payable

The  liability  for  other  policy  claims  and  benefits   payable   represents
management's  estimate  of  unpaid  losses on  claims  and  other  miscellaneous
liabilities to policyholders. Estimated unpaid losses on claims are comprised of
losses on claims that have been reported but not yet paid,  including  estimates
of additional development of initial claims estimates, and claims that have been
incurred but not yet reported (IBNR) to the Company.

The  liability  for other policy  claims and benefits  payable is subject to the
impact of changes in claim severity, frequency and other factors. Although there
is considerable variability inherent in such estimates, management believes that
the liability recorded is adequate.

Revenue Recognition

Premiums on traditional  life and health products are recognized as revenue when
due.  Credit life and credit health  insurance  premiums are recognized over the
contract period on a pro rata basis, or the sum of years digits basis.  Benefits
and expenses are associated with earned premiums, so as to result in recognition
of profits over the lives of the contracts.

Proceeds  from  investment-related  products  and  universal  life  products are
recorded as  liabilities  when  received.  Revenues for  investment-related  and
universal   life  products   consist  of  net  investment   income,   mortality,
administration charges and surrender charges.

Net Income Per Share

Net income per share is  calculated  based on two  methods,  basic  earnings per
share and diluted  earnings per share.  Basic  earnings per share is computed by
dividing income available to common  shareholders by the weighted average number
of common  shares  outstanding  during the period.  Diluted  earnings  per share
reflects  the  potential  dilution  that  could  occur  if  securities  or other
contracts to issue common stock were  converted or  exercised.  Both methods are
presented on the face of the income statement.
Federal Income Taxes

In February,  1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
The Company adopted FAS 109 on a prospective  basis  effective  January 1, 1993.
FAS 109 mandates the asset and liability  method for computing  deferred  income
taxes.  Under this method,  balance sheet amounts for deferred  income taxes are
computed  based on the tax  effect  of the  differences  between  the  financial
reporting and federal income tax basis of assets and  liabilities  using the tax
rates which are expected be in effect when these  differences are anticipated to
reverse.




                                      F-16
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

New Accounting Pronouncements

In June 1997,  the FASB issued FAS No. 131,  "Disclosures  about  Segments of an
Enterprise and Related  Information," which establishes  standards for reporting
information about operating segments. Generally, FAS 131 requires that financial
information  be reported  on the basis that is used  internally  for  evaluating
performance.  The Company adopted SFAS 131 for the year ended December 31, 1998.
As  described  in Note 1,  the  Company  is  principally  engaged,  through  its
subsidiaries,  in administering existing portfolios of individual life insurance
and annuity products.  The Company's insurance  subsidiaries are also engaged in
the business of marketing and underwriting individual life insurance and annuity
products in 49 states and the District of Columbia.  Such  products are marketed
through  independent,  non-exclusive  general agents.  Management  considers the
Company's  insurance  operations to constitute one reportable  segment.  Premium
revenues for  traditional  insurance  products and earned  insurance  charges on
universal  life  and  annuity   products  are  presented  in  the   accompanying
consolidated statements of income. No single customer accounts for 10 percent or
more of the Company's revenue. The Company has no foreign operations.

In February  1998,  the FASB issued FAS No. 132,  "Employers  Disclosures  about
Pensions and Other  Postretirement  Benefits," which revises current  disclosure
requirements for employers' pension and other retiree benefits. FAS 132 does not
change the measurement or recognition of pension or other postretirement benefit
plans. The Company adopted FAS 132 for the year ended December 31, 1998.

In December 1997, the Accounting  Standards Executive Committee issued Statement
of Position  ("SOP") 97-3,  "Accounting by Insurance and Other  Enterprises  for
Insurance-Related  Assessments,"  which  provides  guidance  on  accounting  for
insurance-related assessments. The Company adopted SOP 97-3 January 1, 1999. The
adoption of this SOP did not have a material  impact on the Company's  financial
statements.

In  June,  1998,  the  FASB  issued  FAS No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts,  (collectively  referred to as derivatives) and for
hedging  activities.  FAS No. 133, as amended by FAS No.  138,  "Accounting  for
Certain Derivative  Instruments and Certain Hedging Activities - An Amendment of
FASB  Statement No. 133", is applicable to financial  statements  for all fiscal
quarters of fiscal years  beginning  after June 15, 2000,  as amended by FAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the  Effective  Date of FAS No. 133".  As the Company does not have  significant
investments in derivative financial instruments, the adoption of FAS 133 did not
have a material  impact on the  Company's  results of  operations,  liquidity or
financial position.

Reclassification

Certain  prior years'  amounts have been  reclassified  to conform with the 2000
presentation.


                                      F-17
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       Investments

Fixed  Maturities  The amortized  cost,  gross  unrealized  gains and losses and
market values of fixed  maturities  available for sale and fixed maturities held
to  maturity at December  31,  2000 and 1999,  respectively  were as follows (in
thousands):
<TABLE>
<S>                                           <C>                 <C>               <C>                  <C>

                                             Amortized         Gross Unreal-     Gross Unreal-        Market
                                               Cost             ized Gains       ized Losses           Value

Fixed Maturities Available
 for Sale as of December 31, 2000:
U.S. Treasury securities and
  obligations of U.S. government
  agencies and corporations              $     25,785       $     2,040         $     -0-          $   27,825
Obligations of states and political
  subdivisions                                  4,527               278               -0-               4,805
Corporate securities                          188,056             2,025             5,570             184,511
Mortgage-backed securities                    218,629             5,327               348             223,608
Total Fixed Maturities Available
  For Sale
Fixed Maturities Held to Maturity:            436,997             9,670             5,918             440,749
Private placements-corporate                    1,386                10                10               1,386
Total Fixed Maturities                   $    438,383       $     9,680         $   5,928          $  442,135
Fixed Maturities Available For Sale
 as of  December 31, 1999:

U.S. Treasury securities and
 obligations of U.S. government
agencies and corporations                $     26,191       $       745         $      30          $   26,906
Obligations of states and political
subdivisions                                    4,680                91               -0-               4,771
Corporate securities                          172,686               334             8,306             164,714
Mortgage-backed securities                    207,975             3,273             3,422             207,826
Total Fixed Maturities Available
For Sale                                      411,532             4,443            11,758             404,217
Fixed Maturities Held to Maturity:
   Private placements-corporate                 2,088                11                43               2,056
   Total Fixed Maturities                $    413,620       $     4,454         $  11,801          $  406,273
</TABLE>

The amounts of  unrealized  gains and losses on fixed  maturities  available for
sale included in accumulated other comprehensive income reflected in the balance
sheet have been reduced by estimated  deferred taxes in the amount of $1,313,000
and $(2,560,000) in 2000 and 1999, respectively.
                                      F-18
<PAGE>

The amortized cost and market value of fixed  maturities  available for sale and
fixed  maturities  held to  maturity  at  December  31,  2000 is shown  below by
contractual maturity.  Actual maturities may differ from contractual  maturities
because  borrowers  may have the  right to call or  prepay  obligations  with or
without call or prepayment penalties.

                                       Fixed Maturities Available for Sale
                                      Amortized                    Market
                                        Cost                        Value
                                               (in thousands)

Due in one year or less             $ 39,841                     $ 39,939
Due after one through five years      50,751                       51,653
Due after five through ten years      34,789                       35,231
Due after ten years                   92,987                       90,318
Mortgage backed securities           218,629                      223,608
Total Fixed Maturities Available
 for Sale                           $436,997                     $440,749

                                        Fixed Maturities Held to Maturity
                                     Amortized                  Market
                                      Cost                      Value
                                               (in thousands)

Due in one year or less             $    879                     $   878
Due after one through five year          440                         432
Due after five through ten years         -0-                         -0-
Due after ten years                       67                          76
Mortgage backed securities               -0-                         -0-
Total Fixed Maturities Held to
 Maturity                           $  1,386                     $ 1,386

Proceeds from sales and  maturities of investments  in fixed  maturities  during
2000,  1999  and  1998  were   approximately   $47,761,000,   $106,517,000   and
$77,700,000.  Gross gains of  approximately  $6,000,  $443,000  and $178,000 and
gross losses of  approximately  $11,000,  $61,000 and $16,000  were  realized on
those sales and maturities in 2000, 1999 and 1998, respectively.

                                      F-19

<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Securities

The change in net unrealized  appreciation for equity  securities was $(117,000)
and  $(766,000)  for the years ended  December 31, 2000 and 1999,  respectively.
Amounts as of December 31 were as follows (in thousands):
                                              2000                      1999

Unrealized appreciation                $      1,437                $    1,617
Unrealized depreciation                         (12)                      (12)
Net unrealized appreciation before tax        1,425                     1,605
Less: Federal income tax                       (499)                     (562)
Net unrealized appreciation            $        926                $    1,043

Equity  securities  included a $1,719,704  investment,  ($318,390  at cost),  in
189,750 shares of common stock of Financial  Industries  Corporation  (FIC) (See
note 9). This represents 3.8% of FIC's outstanding  common stock at December 31,
2000.

The net change in  unrealized  investment  gains  (losses)  represents  the only
component of other  comprehensive  income for the years ended December 31, 2000,
1999 and 1998. The following is a summary of the change in unrealized investment
gains  (losses)  net of related  deferred  income  taxes which are  reflected in
accumulated other comprehensive income for the periods presented:

Change in Unrealized Gains (Losses) on Investments
                                    2000              1999               1998
                                                   (in thousands)


Fixed maturities                $  11,067        $ (22,334)        $   (2,607)
Equity securities                    (180)          (1,178)            (1,749)
                                   10,887          (23,512)            (4,356)

Deferred federal income taxes      (3,810)           8,229              1,524
Net change in unrealized gains
 (losses) on investments        $   7,077        $ (15,283)        $   (2,832)


                                      F-20

<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth the reclassification adjustments required for the
years ended December 31, 2000, 1999 and 1998:

Reclassification Adjustments            2000               1999            1998
                                                    (in thousands)

Unrealized holding gains (losses)
 on investments arising during
 the period                       $    7,080          $  (15,034)     $  (2,621)
Reclassification adjustments
 for gains included in
 net income                              (3)                 249            211
Unrealized gains (losses) on
 investments, net of
 reclassification adjustment      $    7,077          $  (15,283)     $  (2,832)

Net Investment Income

The  components  of  net  investment   income  are  summarized  as  follows  (in
thousands):

                                                Year Ended December 31,

                                      2000              1999            1998

Fixed maturities                    $ 43,797        $   43,755       $  47,322
Other, including policy
 loans, real estate,
 mortgage loans and
 equity securities                     8,153             6,881           8,282
                                      51,950            50,636          55,604

Investment expenses                   (1,057)             (723)           (985)
Net Investment Income               $ 50,893        $   49,913        $ 54,619


Realized Gains and Losses

Net realized  (losses) gains  included in net  investment  income are summarized
below (in thousands):
                                                  Year Ended December 31,
                                     2000           1999               1998

Fixed maturities available
 for sale                           $    (5)        $      382        $    162
Equity securities                        -0-                 1             164
Other investments                        -0-                74             662
                                         (5)               457             988

Income taxes                             (2)               160             346
Net realized gains                  $    (3)        $      297        $    642





                                      F-21
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Mortgage loans and invested real estate

The  Company's  mortgage  loans and  invested  real  estate are  diversified  by
property type,  location and issuer.  Mortgage loans are  collateralized  by the
related  properties  and  such  loans  generally  range  from  15% to 80% of the
property's  value at the time the loan is made. No new mortgage  loans were made
during the three year period ended December 31, 2000.

Non-income producing investments

The Company has no non-income producing investments as of December 31, 2000.

3.  Disclosures about Fair Value of Financial Instruments

The estimated fair value of the Company's financial  instruments at December 31,
2000 are as follows:
                                       Carrying                   Fair
                                       Amount                     Value
                                                     (in thousands)

Financial assets:
Fixed maturities                     $  442,135              $  442,135
Policy loans                             48,449                  48,449
Mortgage loans                            4,858                   4,858
Short-term investments                  129,807                 129,807
Cash and cash equivalents                 9,066                   9,066
Notes receivable from affiliates         35,349                  35,349

Financial liabilities:
Deferred annuities                      114,271                 112,648
  Supplemental Contracts                 13,659                  13,263





The following  methods and  assumptions  were used to estimate the fair value of
each class of financial investments:

Fixed maturities

Fair values are based on quoted market prices or dealer quotes.

Policy loans

                                      F-22

<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Policy loans are, generally, issued with coupon rates below market rates and are
considered  early payment of the life benefit.  As such, the carrying  amount of
these financial instruments is a reasonable estimate of their fair value.

Mortgage loans

The fair value of  mortgage  loans is  estimated  using a  discounted  cash flow
analysis  using  rates  for BBB-  rated  bonds  with  similar  coupon  rates and
maturities.

Cash and cash equivalents and short-term investments

The carrying amount of these instruments approximates market value.

Notes receivable from affiliates

The fair value is based on redemption value.

Deferred annuities and supplemental contracts

The fair value of deferred  annuities is estimated using cash surrender  values.
Fair values for supplemental contracts is estimated using a discounted cash flow
analysis, based on interest rates currently offered on similar products.

4.  Present Value of Future Profits of Acquired Business

An analysis of the present value of future profits of acquired  businesses is as
follows:

                                             2000                     1999
                                                  (in thousands)

Beginning balance                      $     39,831        $        43,666
Accretion of interest                         3,121                  3,382
Amortization                                 (6,928)                (7,217)
Ending Balance                         $     36,024        $        39,831

Amortization of the present value of future profits included in the consolidated
statements of income is presented net of the accretion of interest.

The estimated  amount of present value of future  profits to be amortized net of
interest accretion during each of the next five years is as follows:

                                                      (in thousands)
                                           2001              $ 3,431
                                           2002              $ 3,083
                                           2003              $ 2,875
                                           2004              $ 2,576
                                           2005              $ 2,456

                                      F-23
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.  Acquisition of Business

On June 30,  1998,  ILCO,  through  a  subsidiary,  Investors-Indiana,  acquired
Grinnell  Life  Insurance  Company  ("Grinnell  Life")  an  Iowa-domiciled  life
insurer,  from Grinnell Mutual Life Insurance  Company for an adjusted  purchase
price  of  $16.6  million.  As  part  of  the  transaction,  Grinnell  Life  was
immediately merged with and into Investors-Indiana, with Investors-Indiana being
the surviving entity.

6.  Senior Loans

The Senior  Loan of ILCO was  originally  arranged in  connection  with the 1988
acquisition  of Investors- NA and  Investors-CA.  In January,  1993, the Company
refinanced its Senior Loan.  That  transaction  was done in connection  with the
prepayment of the  subordinated  indebtedness and the purchase of warrants which
had been issued as part of the financing of the 1988 acquisitions.  The terms of
the amended and restated credit facility are substantially the same as the terms
and  provisions  of the 1988 senior  loan.  The  maturity  date,  which had been
December 31, 1996, was extended to July 1, 1998 for the Senior Loan. The average
interest  rate paid by the  Company on its Senior Loan was  approximately  7.63%
during 1998.

In February,  1995,  the Company  borrowed an  additional  $15 million under the
Senior Loan to help finance the  acquisition of  Investors-IN,  and the maturity
date of the Senior Loan was further extended to July 1, 1999. In connection with
the acquisition of State Auto Life Insurance  Company in July,  1997, the Senior
Loan agreement was modified to extend the maturity date to October 1, 1998.

As of December 31, 1997, the outstanding principal balance of ILCO's senior loan
obligations was $11.0 million,  which reflected the prepayment by the Company of
the payment originally  scheduled for January 1, 1998. A regular payment, in the
amount of $3.7  million,  was made on April 1, 1998 and a prepayment of the July
1, 1998 installment,  in the amount of $3.7 million,  was made on June 30, 1998.
The  outstanding  principal  balance of ILCO's senior loan  obligations was $3.6
million at June 30, 1998. The final  installment  on the senior loan  obligation
scheduled  for October 1, 1998,  was prepaid on September 30, 1998. As a result,
the senior loan obligation of ILCO was fully discharged  effective September 30,
1998.

7. Income Taxes

The Company  files  consolidated  federal  income tax returns  with its non-life
subsidiaries.  The Company's  life insurance  subsidiaries  file a separate life
consolidated  federal  income tax return.  In accordance  with the Company's tax
allocation agreement, federal income tax expense or benefit is allocated to each
member  of the  consolidated  group as if each  member  were  filing a  separate
return.








                                      F-24
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The U.S. federal income tax provision (benefit) charged to continuing operations
for the years ended December 31, was as follows:

                                         2000             1999            1998
                                                  (in thousands)

Current tax provision              $    5,385       $     5,955     $     6,899
Deferred tax provision                  1,636                19            (432)
Total provision for income taxes   $    7,021       $     5,974     $     6,467

Provision  has not been made for state  income  tax  expense  since  expense  is
minimal.  Premium taxes are paid to various  states where  premium  revenues are
earned.  Premium  taxes are  included in the  statement  of income as  operating
expenses.

The provision for income taxes differs from the amount of income tax  determined
by applying the U.S.  statutory federal income tax rate of 35% to pre-tax income
from continuing operations as a result of the following differences:

                                         2000             1999            1998
                                                    (in thousands)

Income taxes at the U.S.
 statutory rate                   $     6,680        $    6,559      $    6,155
Charitable contribution                   -0-              (920)            -0-
Increase (decrease) in taxes
 resulting from:
  Non-deductible compensation             335               335             312
  Other                                     6               -0-             -0-
Total provision for income taxes  $     7,021        $    5,974      $    6,467

Deferred  taxes are recorded for  temporary  differences  between the  financial
reporting  bases and the federal  income tax bases of the  Company's  assets and
liabilities.  The sources of these  differences  and the estimated tax effect of
each are as follows:

                                                  December 31,
                                             2000                       1999
  Deferred Tax Liability:                            (in thousands)

Deferred policy acquisition costs     $    10,025               $      8,340
Present value of future profits            10,571                     11,597
Net unrealized (depreciation)
 appreciation on                            1,813                     (1,998)
 marketable securities
Acquisition discounts on
 mortgages/policy loans                       969                      1,210
Reinsurance recoverable                     5,000                      5,571
Other taxable temporary differences         2,910                      2,965
Total deferred tax liability               31,288                     27,685


                                      F-25
<PAGE>


    INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED
                            FINANCIAL STATEMENTSRIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                        <C>                         <C>

                                                     December 31,
                                               2000                      1999
                                                    (in thousands)

Deferred policy acquisition costs        $    10,025          $         8,340
Deferred Tax Asset:
Policy reserves                                1,284                    2,771
Invested assets                                1,708                    1,655
Net operating loss carry forward                 764                    1,195
Minimum tax credit                               344                      323
Total deferred tax asset                       4,100                    5,944

Net deferred tax liability               $    27,188          $        21,741

</TABLE>

Deferred federal income tax (expense)  benefit of $(3,810,00) and $8,229,000 for
2000 and 1999,  respectively,  have been provided on the unrealized appreciation
(depreciation)  of  marketable  securities  and  included  in the balance of the
deferred  tax  liability  account.  This  increase or  decrease in deferred  tax
liability has been recorded as a reduction or increase to the equity  adjustment
due to the net change in unrealized  appreciation  or  depreciation  and has not
been  reflected in the deferred  income tax expense  included in net income from
operations.

Under the provisions of pre-1984 life insurance  company income tax regulations,
a portion of "gain from  operations" of Investors-IN  and  Investors-NA  was not
subject to current  taxation but was accumulated,  for tax purposes,  in special
tax memorandum accounts designated as "policyholders' surplus accounts". Subject
to certain  limitations,"policyholders'  surplus" is not taxed until distributed
or the  insurance  company no longer  qualifies to be taxed as a life  insurance
company. The accumulation in these accounts for Investors-NA and Investors-IN at
December 31, 2000 was $8,225,000 and  $4,357,000,  respectively.  Federal income
tax  of  $2,879,000  and  $1,525,000  would  be due if  the  entire  balance  is
distributed at a tax rate of 35%.

The Company does not  anticipate any  transactions  that would cause any part of
the policyholders' surplus accounts to become taxable and, accordingly, deferred
taxes have not been provided on such amounts. At December 31, 2000, Investors-NA
and Investors-IN have approximately $146,000,000 and $17,500,000,  respectively,
in  the   aggregate  in  their   shareholders'   surplus   accounts  from  which
distributions could be made without incurring any federal tax liability.

At December 31, 2000,  the Company and its  non-life  wholly-owned  subsidiaries
have net operating loss carry forwards of approximately $2.1 million.

8. Reinsurance

The Company  reinsures  portions of certain policies thereby  providing  greater
diversification  of  risk  and  minimizing  exposure  on  larger  policies.  The
Company's  retention  on any one  individual  ranges  from  $100,000 to $250,000
depending on the risk. The Company  remains liable to the extent the reinsurance
companies are unable to meet their obligations under the reinsurance agreements.

                                      F-26
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The amounts  reported in the consolidated  financial  statements for reinsurance
ceded are as follows:
                                                          December 31,
                                                  2000                 1999
                                                       (in thousands)

Future policy benefits                       $   9,017          $     10,010
Unearned premiums                                1,456                 1,605
Other policy claims and benefits payable         3,812                 4,103
Amounts recoverable on paid claims               3,163                 3,051
Reinsurance receivables                      $  17,448          $     18,769

                                                   Year ended December 31,
                                         2000              1999         1998
                                                   (in thousands)

Premiums                            $   1,641        $    3,472     $    2,942
Policyholder benefits and expenses  $   2,300        $    3,780     $    4,492

9. Shareholders' Equity

Financial  Industries  Corporation  ("FIC"),  a life insurance  holding company,
retains  ownership of approximately  48.3% of the Company's  outstanding  common
stock. FIC held options to purchase up to an additional 1,702,155 shares, (which
number does not reflect the stock dividend paid by ILCO on March 7, 1999) of the
Company's  authorized but unissued  common stock at a price equal to the average
market value during the six months  preceding the exercise  date.  These options
expired on September 30, 1998.

The Company's ability to pay dividends to its shareholders is affected, in part,
by the receipt of dividends from Investors-NA, which is organized under the laws
of the state of Washington.  Under current  Washington law, any proposed payment
of a dividend or distribution  which,  together with dividends or  distributions
paid  during the  preceding  twelve  months,  exceeds  the greater of (i) 10% of
statutory  surplus as of the  preceding  December 31 or (ii)  statutory net gain
from  operations  for the preceding  calendar  year is called an  "extraordinary
dividend"  and may not be paid until either it has been  approved,  or a waiting
period  shall  have  passed  during  which it has not been  disapproved,  by the
insurance commissioner.

In  addition,  Washington  laws require  that prior  notification  of a proposed
dividend be given to the Washington  Insurance  Commissioner  and that dividends
may be paid only from earned surplus.


                                      F-27
<PAGE>



 INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIAIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net income (before surplus  debenture  interest expense) and capital and surplus
of  Investors-NA  as reported  to  insurance  regulators  and as  determined  in
accordance with statutory accounting practices are as follows:

                                              Year Ended December 31,
                                  2000              1999              1998

Net Income                      $11,201          $ 12,549          $ 14,246
Capital and Surplus             $71,661          $ 75,169          $ 70,627

The insurance regulations of the state of Washington limit the amount an insurer
may invest in the  obligations  of any one  corporation  to four  percent of the
insurer's   statutory   admitted  assets.   Investors-NA  held  $35,349,000  and
$41,497,000 in subordinated  notes issued by FIC and Family Life Corporation,  a
wholly-owned  subsidiary  of FIC, at December  31, 2000 and 1999,  respectively.
Prior to the acquisition of these notes,  Investors-NA received written approval
from the  Washington  State  Insurance  Department for the inclusion of the full
amount of these notes in its statutory  admitted  assets.  At December 31, 2000,
this permitted  practice did not increase  statutory  surplus over what it would
have been under prescribed statutory accounting practices.

In 1998, the NAIC adopted the  Codification of Statutory  Accounting  Principles
guidance,  which will replace the current  Accounting  Practices and  Procedures
manual as the NAIC's primary guidance on statutory  accounting.  The NAIC is now
considering amendments to the Codification guidance that would also be effective
upon  implementation.   The  Codification  provides  guidance  for  areas  where
statutory accounting has been silent and changes current statutory accounting in
some areas,  e.g.  deferred income taxes are recorded.  While management has not
yet determined the impact of  Codification,  it is possible that certain changes
in statutory  accounting  principles arising from Codification would be material
to the Company's insurance subsidiaries.

In 1988,  the Company  authorized  the issuance of 10 million  shares of Class C
Preferred  Stock,  $1.00 par value.  The  Company was not  permitted,  under the
provisions  of the Senior Loan  Agreements  (See Note 6), to issue any preferred
stock except Class A and Class B issued in connection  with the  acquisition  of
the Investors Life Companies. The Company has reacquired the Class A and Class B
Preferred Stock and holds the shares in treasury.

10. Retirement Plans and Employee Stock Plans

Retirement Plan

The  Company  maintains a  retirement  plan,  ("ILCO  Pension  Plan"),  covering
substantially  all  employees  of the Company.  The plan is a  non-contributory,
defined  benefit  pension  plan,  which  covers each  eligible  employee who has
attained 21 years of age and has  completed  one year or more of  service.  Each
participating subsidiary company contributes an amount necessary (as actuarially
determined) to fund the benefits provided for its participating employees.


                                      F-28
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Plan's basic retirement  income benefit at normal retirement age is 1.57% of
the participant's  average annual earnings less 0.65% of the participant's final
average earnings up to covered compensation  multiplied by the number of his/her
years of credited service.  For participants who previously  participated in the
plan  maintained  by the Company for the benefit of former  employees of the IIP
Division of CIGNA  Corporation  (the IIP Plan),  the benefit  formula  described
above  applies to service  subsequent  to May 31, 1996.  With respect to service
prior to that date, the benefit formula  provided by the IIP Plan is applicable,
with certain exceptions applicable to former IIP employees who are classified as
highly compensated employees.

Former eligible IIP employees commenced  participation  automatically.  The Plan
also provides for early retirement, postponed retirement and disability benefits
to eligible employees.  Participant benefits become fully vested upon completion
of five years of service, as defined, or attainment of normal retirement age, if
earlier.

The pension benefit (costs) for the plan includes the following components:
<TABLE>
<S>                                                     <C>                     <C>                <C>

                                                        2000                   1999               1998
                                                                           (in thousands)

Service cost for benefits earned
 during the period                                  $    434                $     446          $     460
Interest cost on projected benefit obligation            987                      905                793
Expected return on plan assets                        (1,174)                  (1,277)            (1,235)
Amortization of unrecognized prior service cost         (229)                    (229)              (229)
Pension benefit (costs)                             $     18                $    (155)         $    (211)
</TABLE>

The following summarizes the funded status of the plan at December 31:

                                                       2000              1999
                                                    (in thousands)

Change in benefit obligation:
Benefit obligation at beginning of period         $ 13,868          $ 12,726
Service cost                                           434               446
Interest cost                                          987               905
Benefits paid                                         (505)             (483)
(Gain)/Loss due to change in assumptions               -0-               -0-
(Gain)/Loss due to experience                       (1,232)              274
Benefit Obligation at end of year                 $ 13,552          $ 13,868


Change in plan assets:                                2000                 1999

Fair value of plan assets at
 beginning of year                                $ 16,325        $ 16,238

Actual return on plan assets                         1,015             570

Benefits paid                                         (505)            (483)

Fair value of plan assets at end of year          $ 16,835        $ 16,325

Funded Status:

Funded status at end of year                      $  3,282        $  2,457

Unrecognized prior service cost                        (11)           (240)

Unrecognized actuarial net loss                      1,592           2,665

Prepaid pension expense at end of year            $  4,863        $  4,882


The significant assumptions for the plans are as follows:

The discount rate for projected benefit  obligations was 7.25% in 2000, 1999 and
1998. The assumed  long-term rate of  compensation  increases was 5.0% for 2000,
1999 and 1998. The assumed  long-term rate of return on plan assets was 8.0% for
2000, 1999 and 1998. Assumed expenses as a percentage of plan assets were 0% for
2000, 1999 and 1998.

                                      F-29
<PAGE>


Savings and Investment Plan

The  Company  maintains  a Savings  and  Investment  (401(k))  Plan that  allows
eligible  employees  who  have  met  a  one-year  service  requirement  to  make
contributions to the Plan on a tax-deferred  basis. A Plan participant may elect
to contribute up to 16% of eligible earnings on a tax deferred basis, subject to
certain limitations  applicable to "highly compensated  employees" as defined in
the Internal  Revenue Code. Plan  participants may allocate  contributions,  and
earnings  thereon,  between  investment  options selected by  participants.  The
Account Balance of each  Participant  attributable to employee  contributions is
100% vested at all times.

During  1995,  the Plan was  amended to allow for the  addition  of Family  Life
Insurance  Company (FLIC), a wholly-owned  subsidiary of FIC, as a participating
employer, thus allowing FLIC employees to participate in the Plan. The amendment
did not affect the Plan's tax-qualified status.


                                      F-30
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 1997,  the Plan was  amended to provide  for a matching  contribution  by the
Company.  The match,  which is in the form of shares of ILCO  common  stock,  is
equal to 100% of an eligible participant's elective deferral  contributions,  as
defined in the Plan,  not to exceed a maximum  percentage  of the  participant's
plan compensation. Initially, the maximum percentage was 1%. Effective, January
1,  2000,  the plan was  amended  to  increase  the  maximum  percentage  to 2%.
Allocations  are made on a quarterly  basis to the account of  participants  who
have at least 250 hours of service in that quarter.

Employee Stock Ownership Plan

The Company has an Employee  Stock  Ownership  Plan and a related  trust for the
benefit of its employees and FLIC employees. The Plan generally covers employees
who have attained the age of 21 and have completed one year of service.  Vesting
of  benefits  to  employees  is  based  on  number  of  years  of  service.   No
contributions were made to the Plan in 2000, 1999 or 1998. At December 31, 2000,
the Plan had a total of 530,562 shares which are allocated to participants.

Effective May 1, 1998,  the 401(k) Plan was amended to provide for the merger of
the ESOP into the 401(k) Plan. In connection with the merger,  certain  features
under  the  ESOP  were  preserved  for  the  benefit  of  employees   previously
participating  in the ESOP with regard to all  benefits  accrued  under the ESOP
through the date of merger.

Stock Option Plans

The Company applies APB Opinion No. 25 and related Interpretations in accounting
for  its  stock  option  plans,  which  are  described  below  accordingly.   No
compensation cost has been recognized by the Company in the accompanying  income
statement for its stock option plans.

In 1999,  the Company paid a stock dividend in the amount of one share of common
stock for each share of common  stock issued and  outstanding.  The dividend was
paid on March 17,  1999 to holders of record on March 8, 1999.  The data in this
note has been restated to reflect the effect of the stock dividend.

Under the  Non-Qualified  Stock  Option  Plan for certain  officers,  directors,
agents and others,  the Board of Directors  is  authorized  to issue  options to
purchase up to  1,200,000  shares of the  Company's  common stock at 100% of the
fair market value on the date of grant but in no case less than $1.67 per share.
In 1988, options to purchase 660,000 shares were granted at a price of $1.67 per
share. In 1990,  options to purchase 60,000 shares expired.  In 1991, options to
purchase  100,000 shares were granted at prices ranging from $4.38 to $4.63.  In
1992 options to purchase  120,000 shares expired.  In 1995,  options to purchase
120,000  shares were granted at a price of $5.56 per share.  These same options,
along with 40,000 other options, were terminated in 1996. In 1997 84,000 options
were canceled.  There were no options granted in 1998, 1997 and 1996. The number
of  options  exercised  in 2000,  1999  and 1998  were 0,  84,000,  and  84,000,
respectively.

Under the  Company's  1999  Non-Qualified  Stock Option Plan options to purchase
shares of the  Company's  common  stock at 100% of the fair market  value on the
date of grant but in no case less than $7.50 per share,  were granted to certain
employees of the Company,  its subsidiaries  and affiliates.  In 1999 options to
purchase  460,000  shares were  granted at prices  ranging  from $9.00 to $9.75.
During 1999, 20,000 options were canceled and no options were exercised.  During
2000,  70,000 shares were granted at prices ranging from $9.00 to $9.75.  During
2000, 68,000 options were canceled and 4,000 options were exercised.

                                      F-31
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following  table  summarized  activity under all Plans for each of the three
years ended December 31, 2000:

                                               1998                Weighted
                                              Shares               Average
                                              (000's)            Exercise Price
Outstanding at the beginning of the year        168            $      1.67
         Granted                                -0-                   0.00
         Exercised                              (84)                  1.67
         Canceled                               -0-                   0.00
Outstanding at the end of the year               84            $      1.67
Options exercisable at year end                 -0-            $       -0-
Weighted average fair value of options
 granted during the year                                       $       -0-

                                               1999                Weighted
                                              Shares               Average
                                              (000's)            Exercise Price

Outstanding at the beginning of the year         84            $       1.67
         Granted                                460                    9.03
         Exercised                              (84)                   1.67
         Canceled                               (20)                   9.00
Outstanding at the end of the year              440            $       9.03
Options exercisable at year end                 -0-            $        -0-
Weighted average fair value of options
 granted during the                                            $        -0-
 year
                                              2000                  Weighted
                                             Shares                 Average
                                            (000's)              Exercise Price
Outstanding at the beginning of the year        440            $       9.03
         Granted                                 70                    9.30
         Exercised                               (4)                   9.00
         Canceled                               (68)                   9.00
Outstanding at the end of the year              438            $       9.08
Options exercisable at year end                  76


                                      F-32
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Weighted average fair value of options granted during the
year

As of December 31, 2000:

                                                  Options Outstanding weighted-
                             Number Outstanding       average remaining
Range of exercise prices     December 31, 2000     Contractual Life (years)
 $9.00 to $9.75                    438,000                  2.45


                             Weighted Average
Range of exercise prices     Exercise prices
 $9.00 to $9.75                     $9.08

                             Number exercisable       Weighted average
Range of Exercise prices     December 31, 2000         exercise price
 $9.00 to $9.75                    76,000                   $9.03


11. Leases

The Company and its subsidiaries occupy office facilities under lease agreements
which expire at various dates through 2005.  Certain  office space leases may be
renewed at the option of the Company.

Rent expense in 2000, 1999, and 1998 was $2,436,159, $2,320,185, and $2,283,198,
respectively, under these lease agreements. Minimum annual future rentals are as
follows:

                                               (in thousands)
                                             2001     $   2,281
                                             2002         2,155
                                             2003         2,133
                                             2004         2,099
                                             2005         2,041
                                         Thereafter       6,347
                                                      $  17,057









                                      F-33
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Related Party Transactions

The obligations of the Company under the Senior Loan were guaranteed by FIC. FIC
presently  owns  3,932,692  shares of the company's  Common Stock,  constituting
48.3% of such  shares  outstanding.  FIC held  options to acquire an  additional
1,702,155  shares,  (which does not reflect the stock  dividend  paid by ILCO on
March 7, 1999) at the  average  bid price of such  shares  during the  six-month
period preceding the date of any such purchase as long as ILCO's debt guaranteed
by FIC (the Senor  Loans)  remained  outstanding.  As  described  in Note 6, the
current Senior Loan of ILCO was fully repaid on September 30, 1998. Accordingly,
FIC's rights under the 1986 option agreement expired on September 30, 1998.

As  part of the  financing  arrangement  for  the  acquisition  of  Family  Life
Insurance Company, Family Life Corporation ("FLC"), a subsidiary of FIC, entered
into a senior loan agreement  under which $50 million was provided by a group of
banks. The balance of the financing consisted of a $30 million subordinated note
issued by FLC to Merrill Lynch Insurance Group,  Inc.  ("Merrill Lynch") and $14
million borrowed by another subsidiary of FIC from an affiliate of Merrill Lynch
and  evidenced  by a senior  subordinated  note in the  principal  amount of $12
million and a junior subordinated note in the principal amount of $2 million and
$25 million  lent by two  insurance  company  subsidiaries  of ILCO.  The latter
amount was  represented by a $22.5 million loan from  Investors-NA  to FLC and a
$2.5 million loan provided  directly to FIC by Investors-CA.  In addition to the
interest provided under those loans,  Investors-NA and Investors-CA were granted
by FIC  non-transferable  options to purchase,  in the amounts  proportionate to
their  respective  loans, up to a total of 9.9 percent of shares of FIC's common
stock at a price of  $10.50  per share  ($2.10  per  share as  adjusted  for the
five-for-one  stock split in  November,  1996),  equivalent  to the then current
market price, subject to adjustment to prevent dilution. The original provisions
of the options  provided for their expiration on June 12, 1998 if not previously
exercised.  In connection with the 1996 amendments to the subordinated notes, as
described  below,  the expiration  date of the options was extended to September
12, 2006.

                                      F-34
<PAGE>

On July 30, 1993, the  subordinated  indebtedness  owed to Merrill Lynch and its
affiliate  was prepaid.  The Company  paid $38 million plus accrued  interest to
retire the  indebtedness,  which had a principal  balance of  approximately  $50
million on July 30,  1993.  The  primary  source of the funds used to prepay the
subordinated debt was new subordinated loans totaling $34.5 million that FLC and
Family Life Insurance  Investment Company ("FLIIC"),  another subsidiary of FIC,
obtained from  Investors-NA.  The principal amount of the new subordinated  debt
was payable in four equal annual  installments in 2000,  2001, 2002 and 2003 and
bears  interest  at an annual  rate of 9%.  The other  terms of the new debt are
substantially  the same as those of the $22.5  million  subordinated  loans that
Investors-NA had previously made to FLC and that continue to be outstanding.

In June,  1996,  the provisions of the notes from  Investors-NA  to FIC, FLC and
FLIIC were  modified  as  follows:  (a) the $22.5  million  note was  amended to
provide for twenty  quarterly  principal  payments,  in the amount of $1,125,000
each, to commence on December 12, 1996; the final quarterly principal payment is
due on September 12, 2001; the interest rate on the note remains at 11%, (b) the
$30 million note was amended to provide for forty quarterly  principal payments,
in the amount of $163,540 each for the period December 12, 1996 to September 12,
2001;  beginning with the principal payment due on December 12, 2001, the amount
of the principal payment increases to $1,336,458;  the final quarterly principal
payment is due on September  12, 2006;  the interest rate on the note remains at
9%,  (c) the $4.5  million  note was  amended  to  provide  for forty  quarterly
principal  payments,  in the amount of $24,531 each for the period  December 12,
1996 to September 12, 2001; beginning with the principal payment due on December
12, 2001, the amount of the principal payment  increases to $200,469;  the final
quarterly  principal  payment is due on September 12, 2006; the interest rate on
the note  remains at 9%, (d) the $2.5  million  note was amended to provide that
the  principal  balance  of  the  note  is  to be  repaid  in  twenty  quarterly
installments  of  $125,000  each,  commencing  December  12, 1996 with the final
payment due on September 12, 2001; the rate of interest  remains at 12%, (e) the
Master PIK note, which was issued to provide for the payment in kind of interest
due under the terms of the $2.5 million note prior to June 12, 1996, was amended
to provide that the  $1,977,119  principal  balance of the note is to be paid in
twenty  quarterly  principal  payments,  in the amount of  $98,855.95  each,  to
commence December 12, 1996 with the final payment due on September 12, 2001; the
interest rate on the note remains at 12%.

                                      F-35
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



In December, 1998 FLIIC was dissolved.  In connection with the dissolution,  all
of the assets and  liabilities  of FLIIC became the  obligations of FLIIC's sole
shareholder,  FIC. Accordingly, the obligations under the provisions of the $4.5
million note described above are now the obligations of FIC.

Data  processing  services  for  ILCO's  and FIC's  insurance  subsidiaries  are
provided by FIC Computer Service,  Inc. ("FIC  Computer"),  a subsidiary of FIC.
Each  of  FIC's  and  ILCO's  insurance  subsidiaries  has  entered  into a data
processing  agreement  with FIC  Computer  whereby FIC  Computer  provides  data
processing  services  to each  subsidiary  for fees  equal to such  subsidiary's
proportionate  share of FIC Computer's  actual costs of providing those services
to  all  of  the  subsidiaries.   The  Company's  insurance   subsidiaries  paid
$2,426,793,   $2,730,189  and  $2,818,095  and  Family  Life  paid   $1,757,904,
$1,916,350 and $1,610,397 to FIC Computer for data processing  services provided
during the years ended December 31, 2000, 1999 and 1998, respectively.

In 1995,  Investors-NA  entered into a  reinsurance  agreement  with Family Life
Insurance Company ("Family Life") pertaining to universal life insurance written
by Family Life. The reinsurance agreement is on a co-insurance basis and applies
to all covered  business with effective  dates on and after January 1, 1995. The
agreement applies to only that portion of the face amount of the policy which is
less than  $200,000;  face  amounts of $200,000 or more are  reinsured by Family
Life with a third party reinsurer.

In 1996,  Investors-NA  entered into a reinsurance  agreement  with Family Life,
pertaining to annuity contracts written by Family Life. The agreement applies to
contracts written on or after January 1, 1996.

ILCO  received  $12 million,  $13 million,  and $11 million from Family Life for
direct costs  incurred by ILCO on behalf of Family  Life's  operations  in 2000,
1999 and 1998, respectively. Under an agreement between ILCO and Family Life all
direct costs incurred on behalf of the other are to be reimbursed.

13. Commitments and Contingencies

The Company and its subsidiaries are defendants in certain legal actions related
to the normal business  operations of the Company.  Management believes that the
resolution  of such  matters  will not have a material  impact on the  financial
statements.












                                      F-36
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Net Income Per Share

The following table reflects the  calculation of basic and diluted  earnings per
share:
<TABLE>
<S>                                                  <C>                 <C>              <C>

                                                         Year Ended December 31,
                                                2000               1999              1998
                                            (in thousands except per share amounts)

Basic:
Net income available to common shareholders   $ 12,066          $ 12,765            $ 11,119
Weighted average common stock outstanding        8,333             8,796               8,750
Basic earnings per share                      $   1.45          $   1.45            $   1.27
Diluted:
Net income available to common shareholders   $ 12,066          $ 12,765            $ 11,119
Weighted average common stock outstanding        8,333             8,796               8,750
Common stock options                               423               273               2,638
Repurchase of treasury stock                      (413)             (269)             (2,464)
Common stock and common stock equivalents        8,343             8,800               8,924
Diluted earnings per share                    $   1.45          $   1.45            $   1.25


</TABLE>























                                      F-37
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.  Quarterly Financial Data (unaudited)
                                   (in thousands, except per share amounts)

                                    Three Months            Three Months
                                     Ended                     Ended
                                    March 31,                 June 30,
                                    2000        1999        2000       1999

Net Operating Revenue         $   25,399   $  26,270   $  25,270  $  26,693
Net Income                    $    3,231   $   2,961   $   3,123  $   2,627
Basic earnings per share      $     0.37   $    0.34   $    0.38  $    0.30
Diluted earnings per share    $     0.37   $    0.34   $    0.38  $    0.30

                                    Three Months            Three Months
                                     Ended                      Ended
                                    September 30,            December 31,
                                    2000        1999        2000       1999

Net Operating Revenue         $   27,631   $  25,299   $  25,456  $   25,943
Net Income                    $    3,238   $   3,135   $   2,474  $    4,042
Basic earnings per share      $     0.40   $    0.36   $    0.30  $     0.46
Diluted earnings per share    $     0.40   $    0.36   $    0.30  $     0.46

16.  Subsequent Events

Agreement and Plan of Merger.

On January 17, 2001,  ILCO  entered  into an  Agreement  and Plan of Merger (the
"Agreement") with FIC and ILCO Acquisition Company ("ILCO Acquisition"), a Texas
corporation  and  wholly-owned  subsidiary  of FIC.  In general,  the  Agreement
provides that,  following the approval of the Agreement by the  shareholders  of
ILCO and the  approval  of the  issuance  of  shares  of FIC  common  stock  and
amendment to FIC's articles of  incorporation by the shareholders of FIC and the
satisfaction  or  waiver  of the  other  conditions  to  the  merger:  (1)  ILCO
Acquisition  will merge with and into ILCO; and (2) ILCO  Acquisition will cease
to  exist  and  ILCO  will  continue  as  the  surviving  corporation  and  as a
wholly-owned subsidiary of FIC following the merger.

                                      F-38

<PAGE>

Upon the consummation of the merger:  (1) each share of ILCO common stock issued
and  outstanding  immediately  prior to the  merger,  other than  shares of ILCO
common  stock  held as  treasury  shares by ILCO (but  excluding  shares of ILCO
common  stock  held by any of ILCO's  subsidiaries,  whether  or not  treated as
treasury  shares  of ILCO  on a  consolidated  basis  under  generally  accepted
accounting  principles)  or shares of ILCO  common  stock  held by FIC,  will be
converted into the right to receive 1.1 shares of FIC common stock.  However, in
the event of any change in FIC common  stock  and/or ILCO common  stock prior to
the   merger,   such   as  a   stock   split,   stock   dividend,   subdivision,
reclassification, recapitalization, combination, exchange of shares or the like,
the number and class of shares of FIC common stock to be issued and delivered in
the merger in exchange for each  outstanding  share of ILCO common stock will be
adjusted so as to maintain the relative  proportionate  interests of the holders
of ILCO common stock and FIC common stock;  (2) each share of ILCO common stock,
series A  preferred  stock and series B  preferred  stock of ILCO,  in each case
which is held as treasury shares by ILCO prior to the merger  (excluding  shares
of ILCO common stock held by any of ILCO's subsidiaries,  whether or not treated
as treasury  shares of ILCO on a  consolidated  basis under  generally  accepted
accounting principles), and each share of ILCO common stock which is held by FIC
(excluding  any shares of ILCO common stock owned by any of FIC's  subsidiaries)
prior to the merger,  will be cancelled  and  retired;  (3) each share of common
stock of ILCO Acquisition issued and outstanding immediately prior to the merger
will be  converted  into one share of common  stock of ILCO and such shares will
represent all of the issued and outstanding  capital stock of ILCO following the
merger; and (4) shares of FIC common stock outstanding  immediately prior to the
merger  (including  shares of FIC common stock held by any  subsidiary of FIC or
ILCO)  will  remain  outstanding  and  will  be  unaffected  by the  merger.  No
fractional  shares of FIC common stock will be issued in the merger. A holder of
ILCO common stock who would otherwise be entitled to receive  fractional  shares
of FIC  common  stock  as a  result  of the  merger  will  receive,  in  lieu of
fractional  shares,  cash in an amount  equal to the average  closing  price per
share of FIC  common  stock for the 30  trading  days  immediately  prior to the
merger  multiplied  by the  fraction  to which the  holder  would  otherwise  be
entitled.  FIC will make  available to First Union  National  Bank,  as exchange
agent,  from  time to time  sufficient  cash  amounts  to  satisfy  payment  for
fractional  shares  and First  Union  will  distribute  such  proceeds,  without
interest, to the holders of the fractional interests.

                                      F-39
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The consummation of the merger remains subject to regulatory  approval,  as well
as to the various conditions precedent set forth in the Agreement, including the
approval  of certain  matters by the  shareholders  of FIC and ILCO.  For a more
detailed  description of the Agreement,  see the complete copy of the Agreement,
attached as an annex to the S-4 filed by FIC with the  Securities  and  Exchange
Commission on February 1, 2001, as amended by the S-4/A filed on March 13, 2001.

Unsolicited Verbal Inquiries Concerning Possible Purchase of Post-Merger Company

On  March  8,  2001,  FIC  announced  that it has  received  unsolicited  verbal
indications of interest from a few companies that may be interested in acquiring
FIC after  completion  of the merger with ILCO.  The press release did not state
any price ranges or other material terms. In conjunction  with such  indications
of interest,  FIC has retained Philo Smith Capital  Corporation as its financial
advisor to  explore  the  possibility  of a  post-merger  sale of FIC with these
companies and to further  solicit  indications of interest from other  companies
that may have similar  interests.  No formal  indications  of interest have been
received  by FIC to date  and FIC has not  determined  to sell  the  post-merger
company.

Litigation Relating to the Merger

On the day that ILCO publicly  announced the formation of a special committee to
evaluate a  potential  merger with FIC,  two class  action  lawsuits  were filed
against  ILCO,  FIC and the officers and directors of ILCO.  The actions  allege
that a cash  consideration  in the proposed merger is unfair to the shareholders
of ILCO,  that it would prevent the ILCO  shareholders  from  realizing the true
value of ILCO,  and that FIC and the named  officers and  directors had material
conflicts of interest in approving the transaction.  In their initial pleadings,
the plaintiffs sought  certification of the cases as class actions and the named
plaintiffs as class representatives,  and among other relief, requested that the
merger be enjoined  (or, if  consummated,  rescinded and set aside) and that the
defendants account to the class members for their damages.


                                      F-40
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



As of March 16,  2001,  the  plaintiffs  have not taken any further  action with
respect to the litigation.  The defendants believe that the lawsuits are without
merit and intend to  vigorously  contest the  lawsuits.  Management is unable to
determine  the impact,  if any,  that the  lawsuits  will have on the results of
operations of ILCO.

Dividend

In March,  2001, the Company announced that its board of directors  approved the
payment  of an annual  cash  dividend  in the  amount of $0.41  per  share.  The
dividend  is  payable  on April 12,  2001 to record  holders  as of the close of
business on March 20, 2001.




                                      F-41
<PAGE>

<TABLE>

               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                                 BALANCE SHEETS
                           December 31, 2000 and 1999

                          ( in thousands of dollars )
<S>                                            <C>                           <C>                         <C>

 Column A                                     Column B                     Column C                     Column D
                                                                                                   Amount at which
                                                                                                        Shown in the
   Type of Investment                            Costs                        Value                    Balance Sheet
Fixed maturities available for sale:
United States Government and
government agencies and
authorities                                   $ 25,785                     $ 27,825                     $ 27,825
States, municipalities and political
subdivisions                                     4,527                        4,805                        4,805
Corporate securities                           188,056                      184,511                      184,511
Mortgage-backed securities                     218,629                      223,608                      223,608
Total fixed maturities available for
sale                                           436,997                      440,749                      440,749
Fixed maturities held to maturity                1,386                        1,386                        1,386
Total fixed maturities                        $438,383                     $442,135                     $442,135

Equity securities:
Public utilities                                     2                            4                            4
Industrial, miscellaneous and all
other                                               18                           40                           40

Total equity securities                             20                           44                           44
Policy loans                                    48,449                       48,449                       48,449
Mortgage loans                                   4,858                        4,858                        4,858
Real estate                                     32,969                       32,969                       32,969
Short term investments                         129,807                      129,807                      129,807
Total investments                             $654,486                     $658,262                     $658,262



</TABLE>



                                      F-42
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                                 BALANCE SHEETS

                                            December 31, 2000 and 1999
                                            (in thousands of dollars)
ASSETS                                          2000                 1999
Short-term investments                   $    12,404         $      15,505
Cash and cash equivalents                        179                    48

Subordinated debenture receivables from
 Investors Life Insurance Company
 of North America                                -0-                 5,896

Investments in and advances to
 subsidiaries                                150,609               129,345

Accounts receivable                            5,055                 5,144
Property and equipment, net                      254                   260
Other assets                                     446                   382
     Total Assets                        $   168,947         $     156,580


                                      F-43
<PAGE>



               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                            BALANCE SHEETS, continued

                                            December 31, 2000 and 1999
                                             (in thousands of dollars)


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:                                     2000           1999
Accounts payable and accrued expenses        $  1,799       $     1,808
Deferred gain on sale of real estate              519               628

      Total Liabilities                         2,318             2,436
Redeemable preferred stock:
      Class A preferred stock, $1 par value,
      shares authorized and issued              5,000             5,000
Redeemable preferred stock:
      Class B preferred stock, $1 par value,   15,000            15,000
      shares authorized and issued             20,000            20,000
Redeemable preferred stock, repurchased
 and held as treasury stock                   (20,000)          (20,000)
                                                  -0-               -0-
Shareholders' Equity:

Common stock, $.22 par value, 15,000,000
 shares authorized; 10,859,478 and
 10,855,478 shares issued, 8,798,905
 and 8,827,941 shares outstanding in 2000
 and 1999, respectively                         2,389             2,388

Additional paid-in capital                      4,561             4,526

Accumulated other comprehensive income          3,365            (3,712)
Retained earnings (including $158,544 and
 $147,259 of undistributed earnings
 of subsidiaries at December 31, 2000
 and 1999, respectively)                      163,998            151,932
                                              174,313            155,134
Common treasury stock, at cost, 2,080,573
 and 1,378,017 shares in 2000 and 1999         (7,684)              (990)
Total Shareholders' Equity                    166,629            154,144
Total Liabilities and Shareholders'
 Equity                                      $168,947       $    156,580


                                      F-44
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                            STATEMENTS OF INCOME

                  Years Ended December 31, 2000, 1999 and 1998
                            (in thousands of dollars)
<TABLE>
<S>                                               <C>                    <C>               <C>

                                                 2000                   1999              1998

Revenues charged to subsidiaries:
Interest income                              $   1,192             $    1,418        $   2,391
Other income                                       130                    134              138
                                                 1,322                  1,552            2,529
Operating expenses                                 121                    122              348
Interest expense                                   -0-                    -0-              415
                                                   121                    122              763
Income from operations                           1,201                  1,430            1,766
Federal income tax provision                       420                    501              618
Net income before equity in
 undistributed earnings from
 subsidiaries                                      781                    929            1,148

Equity in undistributed earnings from
subsidiaries                                    11,285                 11,836            9,971
Net income                                   $  12,066             $   12,765        $  11,119

</TABLE>

                                      F-45
                                     <PAGE>
               INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
           SCHEDULE II - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)

<TABLE>
<S>                                                   <C>                 <C>               <C>

                                                                Year ended December 31,
CASH FLOWS FROM OPERATING                           2000                  1999               1998
ACTIVITIES:

Net income                                     $   12,066             $ 12,765             $ 11,119
Adjustments to reconcile net income to net
     cash (used in ) provided by
     operating activities:
Amortization of deferred gain on sale of
real estate                                          (110)                (110)                (110)
Decrease (increase)  in accounts receivable            89                 (184)                 (20)
Increase in investment in and advances to
  subsidiaries                                    (14,185)             (10,191)              (8,957)
(Decrease) increase in accounts payable and
  accrued expenses                                     (9)                (601)                (161)
(Increase) decrease in other assets                   (64)                   6                  105
Other                                                   5                    5                  -0-
Net cash (used in) provided by operating
  activities                                       (2,208)                1,690                1,976
CASH FLOWS FROM INVESTING
  ACTIVITIES:

Change in short term investments                    3,101               (11,773)              (3,040)
Net cash provided by (used in) investing
 activities                                         3,101               (11,773)              (3,040)
CASH FLOWS FROM FINANCING
  ACTIVITIES:

Repayment of debt                                     -0-                   -0-              (10,964)
Stock options exercised                                36                   155                  141
Purchase and reissuance of treasury stock          (6,694)                 (181)                  45
Payment received on subordinated
  debenture receivable                              5,896                10,000               11,900
Net cash (used in) provided by financing
activities                                           (762)                9,974                1,122
Net increase (decrease) in cash and cash              131                  (109)                  58
equivalents
Cash and cash equivalents, beginning of year           48                   157                   99
Cash and cash equivalents, end of year         $      179             $      48            $     157

</TABLE>


                                      F-46
<PAGE>

               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                            SCHEDULE IV - REINSURANCE
                            (in thousands of dollars)

<TABLE>
<S>                                     <C>               <C>               <C>
                                                         Ceded To       Assumed
                                    Direct                Other          From
                                    Amount              Companies     Companies
2000
Life insurance in-force          $6,383,740           $1,160,358      $492,891
Premium
Life insurance                       11,819                1,008           -0-
Accident-health insurance               694                  633           -0-
Total                            $   12,513           $    1,641      $    -0-

1999
Life insurance in-force          $6,612,022           $1,294,265      $438,833
Premium:
Life insurance                   $   13,776           $    2,741      $     21
Accident-health insurance               808                  731            (1)
Total                            $   14,584           $    3,472      $     20

1998
Life insurance in-force          $7,258,662           $1,531,981      $331,133
Premium:
Life insurance                   $   12,782           $    2,112      $     48
Accident-health insurance             1,001                  830             1
Total                            $   13,783           $    2,942      $     49
</TABLE>


                                      F-47
<PAGE>


               INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
                      SCHEDULE IV - REINSURANCE, continued

                                                 (in thousands of dollars)

                                                            Percentage
                                                Net           Of Amount
2000                                           Amount         Assumed

Life insurance in-force                  $   5,716,273          8.62%
Premium:
     Life insurance                             10,811          0.00%
     Accident-health insurance                      61          0.00%
Total                                    $      10,872          0.00%

1999
Life insurance in-force                  $   5,756,590          7.62%
Premium:
     Life insurance                      $      11,056          0.19%
     Accident-health insurance                      76          1.03%
Total                                    $      11,132          0.18%

1998
Life insurance in-force                  $   6,057,814          5.47%
Premium:
     Life insurance                      $      10,718          0.45%
     Accident-health insurance                     172          0.58%
Total                                    $      10,890          0.45%









                                      F-48

<PAGE>



                                  Exhibit Index


Exhibit         Page
Number          Number                  Description

 3(a)                         Certificate of Incorporation of InterContinental
                              Life Corporation filed May 22, 1969 and Amendments
                              thereto (1)

                              (i)      Amendment filed July 16, 1973

                              (ii)     Amendment filed August 4, 1977

                              (iii)    Amendment filed February 10, 1983

                              (iv)     Amendment filed December 14, 1988

                              (v)      Amendment filed February 9, 1990

 3(b)                         By-laws of InterContinental Life Corporation (2)

 3(c)                         Articles of Incorporation of InterContinental Life
                              Corporation of Texas (10)

 3(d)                         Amendment to Articles of Incorporation of
                              InterContinental Life Corporation of Texas (10)

 3(e)                         By-Laws of InterContinental Life Corporation of
                              Texas (10)

 3(f)                         Articles of Merger of InterContinental Life
                              Corporation and InterContinental Life Corporation
                              of Texas (10)

 3(g)                         Plan and Agreement of Merger Between
                              InterContinental Life Corporation and
                              InterContinental Life Corporation of Texas (10)

10(aa)                        Lease dated December 20, 1985 between Registrant
                              and Parker Road Associates for the rental of 40
                              Parker Road, Elizabeth, New Jersey (3)

10(ab)                        Registrant's Defined Benefit Pension Plan,
                              effective as of January 1, 1988 (4)

10(ac)                        Registrant's Employee Stock Purchase Plan,
                              effective as of August 25, 1989(5)


                                     Ex - 1

<PAGE>


10(ad)                        Note dated June 12, 1991 in the amount of $22.5
                              million made by Family Life Corporation in favor
                              of Investors Life Insurance Company of North
                              America(6)

10(ae)                        Note dated June 12, 1991 in the amount of $2.5
                              million made by Financial Industries Corporation
                              in favor of Investors Life Insurance Company of
                              California (6)

10(af)                        InterCreditor Agreement among Investors Life
                              Insurance Company of North America, Investors Life
                              Insurance Company of California and the Agent
                              under the Credit Agreement dated as of June 12,
                              1991 (6)

10(ag)                        Option Agreement by Financial Industries
                              Corporation in favor of Investors Life Insurance
                              Company of North America and Investors Life
                              Insurance Company of California (6)

10(ah)                        Terms and Conditions of Employment Contract of
                              James M. Grace approved by Registrant's Board of
                              Directors on May 16, 1991 (10)

10(ai)                        Note dated July 30, 1993 in the amount of $30
                              million made by Family Life Corporation in favor
                              of Investors Life Insurance Company of
                              North America(7)

10(aj)                        Note dated July 30, 1993 in the amount of $4.5
                              million made by Family Life Insurance Investment
                              Company in favor of Investors Life Insurance
                              Company of North America (7)

10(ak)                        Amendment No. 1 dated July 30, 1993 between Family
                              Life Corporation and Investors Life Insurance
                              Company of North America amending $22.5 million
                              note (7)

10(al)                        Data Processing Agreement dated as of November 30,
                              1994 between InterContinental Life Insurance
                              Company and FIC Computer Services, Inc.(8)

10(am)                        Data Processing Agreement dated as of November 30,
                              1994 between Investors Life Insurance Company of
                              North America and FIC Computer Services, Inc. (8)

10(an)                        Data Processing Agreement dated as of November 30,
                              1994 between Family Life Insurance Company and FIC
                              Computer Services, Inc. (8)

10(ao)                        Amendment No. 2 dated December 12, 1996, effective
                              June 12, 1996 to the note dated June 12, 1991 in
                              the amount of $22.5 million made by Family Life
                              Corporation in favor of Investors Life Insurance
                              Company of North America(9)


                                     Ex - 2

<PAGE>


10(ap)                        (i)     Amendment No. 1 dated December 12, 1996,
                                      effective June 12, 1996 to the note dated
                                      June 12, 1991 in the amount of $2.5
                                      million made by Financial Industries
                                      Corporation in favor of Investors Life
                                      Insurance Company of California (9)

                              (ii)    Amendment No. 1 dated December 12, 1996,
                                      effective June 12, 1996 to the "payment in
                                      kind" provisions of the note dated June
                                      12, 1991 in the amount of $2.5 million
                                      made by Financial Industries Corporation
                                      in favor of Investors Life Insurance
                                      Company of North America.(9)

10(aq)                        Amendment No. 1 dated December 12, 1996,
                              effective June 12, 1996 to the note dated July
                              30, 1993 in the amount of $30 million made by
                              Family Life Corporation in favor of Investors Life
                              Insurance Company of North America(9)

10(ar)                        Amendment No. 1 dated December 12, 1996, effective
                              June 12, 1996 to the note dated July 30, 1993 in
                              the amount of $4.5 million made by Family Life
                              Insurance Investment Company in favor of Investors
                              Life Insurance Company of North America (9)

10(as)                        Amendment Agreement dated December 12, 1996 to the
                              Option Agreement by Financial Industries
                              Corporation in favor of Investors Life Insurance
                              Company of North America and Investors Life
                              Insurance Company of California (9)

10(at)                        Assignment Agreement  dated December 23, 1998,
                              from  Family Life Insurance Investment Company to
                              Financial Industries Corporation, assigning the 9%
                              Senior Subordinated Note dated July 30, 1993 in
                              the amount of $4.5 million made by Family Life
                              Insurance Investment Company in favor of Investors
                              Life Insurance Company of North America  (11)

10(au)                        InterContinental Life Corporation 1999 Stock
                              Option Plan.  Filed on April 20, 1999 with
                              Registrant's Form DEF 14A, and incorporated herein
                              by reference.

10(av)                        Amendment to Surplus Debenture dated September 28,
                              1999  between Investors Life Insurance Company of
                              North America and the Registrant.  Filed with
                              Registrant's Annual Report on Form 10-K for the
                              fiscal year ended December 31, 1999 and
                              incorporated herein by reference.

10(aw)        Ex-5            Employment Agreement of James M. Grace dated
                              January 8, 2001.

21            Ex-11            Subsidiaries of the Registrant.

23            Ex-12            Consent of PricewaterhouseCoopers LLP.


                                     Ex - 3

<PAGE>


(1) Filed with the Registrant's Registration Statement on Form S-8 (Registration
No.  2085333) and  incorporated  herein by  reference;  except  Amendment  filed
December 14, 1988 (item (iv)), which was filed with Registrant's  Current Report
of Form 8-K dated January 12, 1989, and  incorporated  herein by reference;  and
Amendment  filed  February  9, 1990,  which was filed with  Registrant's  Annual
Report  on  Form  10-K  for  the  fiscal  year  ended  December  31,  1989,  and
incorporated herein by reference.

(2) Filed with the  Registrant's  Annual Report on Form 10-K for the fiscal year
ended December 31, 1984 and incorporated herein by reference.

(3) Filed with the  Registrant's  Annual Report of Form 10-K for the fiscal year
ended December 31, 1985 and incorporated herein by reference.

(4) Filed with Registrant's Annual Report of Form 10-K for the fiscal year ended
December 31, 1988, and incorporated herein by reference.

(5) Filed with Registrants  Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, and incorporated herein by reference.

(6) Filed with  Financial  Industries  Corporation's  Current Report on Form 8-K
dated June 25, 1991, and incorporated herein by reference.

(7) Filed with Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, and incorporated herein by reference.

(8) Filed with Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, and incorporated herein by reference.

(9) Filed with Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference.

(10)  Filed  with  Registrant's  Quarterly  Report on Form  10-Q for the  fiscal
quarter ended June 30, 1997, and incorporated herein by reference.

(11)  Filed with  Registrant's  Annual  Report on form 10-K for the fiscal  year
ended December 31, 1998, and incorporated herein by reference.


                                     Ex - 4


<PAGE>



                                 EXHIBIT 10(aw)

                              EMPLOYMENT AGREEMENT

THIS EMPLOYMENT  AGREEMENT  (this  "Agreement") is entered into as of January 8,
2001, between  InterContinental  Life Corporation,  a Texas corporation with its
principal  place of business  located at 6500 River Place Blvd.,  Building  One,
Austin,  Texas  78730  (the  "Company"),  and  James M.  Grace,  of PO Box 7981,
Horseshoe Bay, Texas 78657-7981 (the "Employee").

                                    RECITALS

The Company is  primarily  engaged in the business of  insurance  and  financial
services.

The Company  desires to employ the Employee,  and the Employee  desires to be so
employed by the Company, on the terms and subject to the conditions set forth in
this Agreement.
                                    AGREEMENT

NOW,  THEREFORE,  in  consideration  of the premises and the mutual promises set
forth in this Agreement, the Company and the Employee hereby agree as follows:

          1.   Employment.

     (a)  Subject to the terms and  conditions  contained  herein,  the  Company
     hereby  agrees  to employ  the  Employee,  and the  Employee  accepts  such
     employment,  from the  date  hereof  until  August  12,  2005.  During  the
     Employee's employment under this Agreement, the Employee shall perform such
     duties for the  Company as are  customarily  performed  by an employee in a
     similar position or as may from time to time be assigned to the Employee by
     the Board of Directors of the Company (the  "Board") or by the President of
     the Company; provided,  however, the Employee shall only be assigned duties
     which are the same or  substantially  similar to the duties  that  Employee
     performed at the time that this Agreement was executed.  The Employee shall
     have the title of Vice  President  and  Treasurer  or such  other  title or
     titles, if any, as from time to time may be assigned to the Employee by the
     Board.

     (b) The Employee agrees to perform  faithfully,  industriously,  and to the
     best of the Employee's ability,  experience, and talents, all of the duties
     as assigned to him as needed from time to time  pertaining to  consultation
     on pertinent financial reporting and acquisition activities. So long as the
     Employee is employed by the Company,  the Employee  shall not,  without the
     written consent of the Company:

          (i) engage in any other  activity  for  compensation,  profit or other
          pecuniary advantage, during the term of this Agreement;

                                     Ex - 5


<PAGE>

          (ii)  render or  perform  services  of a  business,  professional,  or
          commercial  nature  (which  shall  specifically  not include  services
          performed  for a charitable  entity or a  homeowners'  or  condominium
          association),  either alone or as an employee,  consultant,  director,
          officer,  or partner of another  business  entity,  whether or not for
          compensation,  which services are  competitive  with or adverse to the
          business of the Company or its affiliates or subsidiaries; or

          (iii)  invest in or become a  shareholder  of another  corporation  or
          other entity (other than an affiliate of the Company)  which  business
          is  competitive  with or adverse to the business of the Company or its
          affiliates  or  subsidiaries,   if  such  investment  requires  active
          involvement  of the Employee in the operation of said  corporation  or
          other entity.

     2. Location of  Employment.  The Employee's  principal  place of employment
     shall be at the principal  executive offices of the Company located at 6500
     River Place Blvd.,  Building One, Austin,  Texas 78730, or the Austin area.
     Employee  shall not be required to perform  services for the Company or its
     affiliates outside of the Austin area.

     3. Compensation.

     (a) In exchange for full  performance  of the  Employee's  obligations  and
     duties under this Agreement, the Company shall pay the Employee as follows:

      From                    To                                  Amount
      January 1, 2001         August 12, 2001                     $ 121,875
      August 13, 2001         August 12, 2002                     $ 195,000
      August 13, 2002         August 12, 2003                     $ 195,000
      August 13, 2003         August 12, 2004                     $ 195,000
      August 13, 2004         August 12, 2005                     $ 195,000

     Such  payments  shall be payable in  installments  in  accordance  with the
     Company's regular payroll schedule.

     (b) The base salary  described in subsection  (a) hereof is a gross amount,
     and the Company shall be required to withhold  from such amount  deductions
     with  respect  to  Federal,  state  and  local  taxes,  FICA,  unemployment
     compensation   taxes  and  similar   taxes,   assessments   or  withholding
     requirements.

     (c) During the Employee's  employment  under this  Agreement,  the Employee
     shall also be reimbursed by the Company for  reasonable  business  expenses
     actually  incurred or paid by the  Employee,  consistent  with the policies
     established by the Board, in rendering to the Company or its affiliates the
     services  provided  for in this  Agreement,  upon  presentation  of expense
     statements or such other  supporting  information as is consistent with the
     policies of the Company.


                                     Ex - 6
<PAGE>
     (d) The  Employee  shall be entitled to  participate  in all benefit  plans
     (including  but not  limited  to,  deferred  compensation  plans,  medical,
     dental,  life  insurance  plans,  or stock  option  plans)  which  shall be
     available  from time to time to the  domestic  management  employees of the
     Company (including the management employees of an affiliate of the Company)
     generally.  If, for any reason,  the Company is unable to make available to
     Employee  coverage under the life insurance or the group medical  insurance
     plans  generally  available to employees of the Company,  the Company shall
     obtain   substantially   similar  individual  life  insurance  and  medical
     insurance  benefits for Employee and his spouse.  The dollar  amount of the
     Employee's  contribution to the premiums for such individual life insurance
     and medical  insurance  benefits  shall not exceed the dollar amount of the
     contribution  which would  otherwise  have been made by Employee  under the
     group life and  medical  plans  generally  available  to  employees  of the
     Company.

     4. Term.

     (a) This  Agreement  shall be  effective  as of January 1, 2001,  and shall
     terminate on August 12, 2005.  The  Agreement  may not be terminated by the
     Company  prior to such  date,  other  than as set  forth in  Section  4. If
     Employee  is  terminated  in a manner  other than as provided  herein,  the
     Company shall pay the Employee the remaining  salary through the end of the
     term of this Agreement.

     (b) The employment of the Employee under this Agreement  shall terminate on
     the date of the Employee's death;  provided however, if Employee dies prior
     to August 12, 2002, Employee's spouse,  Letitia Grace, shall be entitled to
     receive the salary due  hereunder to Employee  through  August 12, 2002, in
     installments  as if  Employee  were  still  on the  Company's  payroll.  If
     Employee dies after August 12, 2002, Letitia Grace shall not be entitled to
     any further salary payments and this Agreement shall immediately terminate.

     (c) The  employment of the Employee  under this Agreement may be terminated
     by the Company upon written  notice from the Board that,  in the opinion of
     the  Board,  the  Employee  has  (i)  demonstrated  willful  and  continued
     misconduct  in the  execution  of the  Employee's  duties  which  have been
     appropriately  assigned in accordance with the terms and provisions of this
     Agreement, (ii) been convicted of or pleaded nolo contendere to a felony or
     other serious crime  involving the theft or  misappropriation  of money, or
     (iii) misappropriated assets of the Company.

     (d) The  employment of the Employee under this  Agreement  shall  terminate
     upon receipt by the Board of a written notice of resignation  signed by the
     Employee  or,  if no notice  is  given,  on the date on which the  Employee
     voluntarily  terminates his employment  relationship  with the Company.  In
     such event,  Employee  shall not be  entitled  to any further  compensation
     hereunder.

     (e) If the  Employee's  employment is  terminated  pursuant to this Section
     4(c) or (d),  the  Employee  shall not be entitled to any  compensation  or
     benefits from the Company,  under Section 3 of this Agreement or otherwise,
     except for the following:

          (i) base salary accrued,  and reasonable  business expenses  incurred,
          under  Section  3  of  this   Agreement   through  the  date  of  such
          termination; and
                                     Ex - 7

<PAGE>

          (ii) such  benefits,  if any, as may be required to be provided by the
          Company under the  Comprehensive  Omnibus  Budget  Reconciliation  Act
          (COBRA), or any successor or similar legislation.

     (f) In the event of a Change  in  Control  of the  Company,  the  remaining
     amounts  payable  under this  Agreement  shall become  immediately  due and
     payable in one lump sum.  Following  such  payment,  this  Agreement  shall
     terminate.  For the purposes of this Agreement, a "Change in Control" shall
     be deemed to have taken place upon the occurrence of any one or more of the
     following:

          (i) Roy F.  Mitte is no  longer  the  Chairman,  President  and  Chief
          Executive  Officer of the  Company,

          (ii) a  majority  of the  members  of the  Board of  Directors  of the
          Company are not individuals who were selected to serve as Directors by
          Roy F. Mitte.

     (g) In no event  shall the  amount of the  payment  to be made to  Employee
     under the provisions of Section 4(f),  above,  exceed an amount which would
     cause  all  amounts  to be  received  by  Employee  which  are  treated  as
     "parachute  payments"  (within  the  meaning of section  280G(b)(2)  of the
     Internal Revenue Code) to exceed 2.99 times the "base amount" applicable to
     Employee for purposes of section  280G(b)(3) of the Internal  Revenue Code.

     5. Employee's Representations.

     (a) The Employee  represents  that he has full authority to enter into this
     Agreement  and that he is free to enter into this  Agreement  and not under
     any   contractual   restraint   which  would  prohibit  the  Employee  from
     satisfactorily performing his duties to the Company under this Agreement.

     (b)  The  Employee  acknowledges  that  he is  free  to  seek  advice  from
     independent counsel with respect to this Agreement. The Employee has either
     obtained such advice or, after  carefully  reviewing  this  Agreement,  has
     decided  to  forego  such  advice.  The  Employee  is  not  relying  on any
     representation  or  advice  from  the  Company  or  any  of  its  officers,
     directors, attorneys or other representatives regarding this Agreement, its
     content or effect.

     6.  Governing  Law. This  Agreement  shall be governed by and construed and
     enforced in accordance with the laws of the State of Texas.

     7. Entire Agreement.  This Agreement constitutes the whole agreement of the
     parties  hereto in  reference  to any  employment  of the  Employee  by the
     Company and in  reference to any of the matters or things  herein  provided
     for or hereinabove  discussed or mentioned in reference to such employment;
     all prior agreements, promises, representations and understandings relative
     thereto being herein merged.

     8. Assignability.

     (a) In the event the  Company  shall  merge or  consolidate  with any other
     corporation, partnership or business entity, or all or substantially all of
     the Company's  business or assets shall be transferred in any manner to any
     other corporation,  partnership or business entity,  then such successor to
     the Company shall thereupon
                                     Ex - 8

<PAGE>

     succeed  to,  and  be  subject  to,  all  rights,  interests,   duties  and
     obligations  of, and shall  thereafter be deemed for all purposes hereof to
     be, the "Company" under this Agreement.

     (b) This  Agreement  is  personal  in nature  and the  Employee  shall not,
     without  the  written  consent  of the  Company,  assign or  transfer  this
     Agreement or any rights or obligations hereunder.

     (c) Except as set forth in  subsection  (a)  above,  nothing  expressed  or
     implied in this  Agreement is intended or shall be construed to confer upon
     or give to any person, other than the parties to this Agreement, any right,
     remedy  or claim  under or by  reason  of this  Agreement  or of any  term,
     covenant or condition of this Agreement.

     9.  Amendments;   Waivers.   This  Agreement  may  be  amended,   modified,
     superseded,  canceled,  renewed or extended  and the terms or  covenants of
     this Agreement may be waived only by a written  instrument  executed by the
     parties to this Agreement or, in the case of a waiver, by the party waiving
     compliance. Any such written instrument must be approved by the Board to be
     effective as against the  Company.  The failure of any party at any time or
     times to require performance of any provision of this Agreement shall in no
     manner  affect the right at a later time to enforce the same.  No waiver by
     any  party  of the  breach  of any  term  or  provision  contained  in this
     Agreement,  whether by conduct or otherwise,  in any one or more instances,
     shall be deemed to be, or construed as, a further or  continuing  waiver of
     any such  breach,  or a waiver of the breach of any other term or  covenant
     contained in this Agreement.

     10. Notice.  All notices,  requests or consents required or permitted under
     this  Agreement  shall be made in  writing  and shall be given to the other
     party by personal delivery,  overnight air courier (with receipt signature)
     or facsimile transmission (with "answerback" confirmation of transmission),
     if to the Company,  sent as follows:  Attention:  Theodore A. Fleron,  6500
     River  Place  Blvd.,  Building  One,  Austin,  Texas  78730,  and if to the
     Employee: James M Grace, P.O. Box 7981, Horseshoe Bay, Texas 78657-7981, or
     such other  addresses  or telecopy  numbers of which the parties have given
     notice  pursuant to this Section 12. Each such  notice,  request or consent
     shall be deemed effective upon the date of mailing of such notice, provided
     the  mailing  party  retains  a  receipt   signature  or   confirmation  of
     transmission, as applicable.

     11.  Severability.  Any provision of this  Agreement  that is prohibited or
     unenforceable  in any  jurisdiction  shall,  as to  such  jurisdiction,  be
     ineffective to the extent of such prohibition or  unenforceability  without
     invalidating the remaining  provisions  hereof, and any such prohibition or
     unenforceability  in  any  jurisdiction  shall  not  invalidate  or  render
     unenforceable such provision in any other jurisdiction.


                                     Ex - 9
<PAGE>

     IN WITNESS  WHEREOF,  the  parties to this  Agreement  have  executed  this
     Employment Agreement as of the date first above written.

                               InterContinental Life Corporation
                               a Texas corporation


                               By
                                --------------------------------------
                               Roy F. Mitte
                               Chairman, President and Chief Executive Officer


                               Address for Notices:

                               6500 River Place Blvd.,
                               Building One
                               Austin, Texas 78730
                               Telephone: (512) 404-5000


                               Employee:

                                By:
                                -----------------------------------------
                                James M. Grace

                                Address for Notices:

                                P.O. Box 7981
                                Horseshoe Bay, Texas 78657-7981



                                     Ex - 10
<PAGE>


                                   EXHIBIT 21

                           SUBSIDIARIES OF REGISTRANT

                Investors Life Insurance Company of North America

                   Investors Life Insurance Company of Indiana

                           ILG Securities Corporation

                              ILG Sales Corporation

                       InterContinental Growth Plans, Inc.

                      InterContinental Life Agency, Inc. *



         *Wholly-owned subsidiary of InterContinental Growth Plans, Inc.
























                                     Ex - 11


<PAGE>
                                   EXHIBIT 23



                       CONSENT OF INDEPENDENT ACCOUNTANTS


We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement on Form S-8 (No. 33- 71074) of  InterContinental  Life  Corporation of
our report dated April 2, 2001 appearing on page F-2 of this Form 10-K.






PricewaterhouseCoopers LLP
Dallas, Texas
April 2, 2001



















                                     Ex - 12